An English economics lesson for French high school students : How to get a stronger economic growth ?

1. The sources of the economic growth
How to get a stronger growth ?
Chapter 2
GurunES

2. The sources of the economic growth
How to get a stronger growth ?
Chapter Two
a/ Using more factors of production
b/ Increasing the labour productivity to get an intensive
growth
c/ getting growth with innovations
d/ Accumulating capital (in different forms) to create a
self-maintained growth
e/ Particular importance of the institutions
GurunES

3. a/ using more factors of production to get an extensive growth
3
Labor
Natural
resources
Capital
outputs (GDP)
3inputs
The extensive growth is based on the
expansion of the quantity of inputs in order to
increase the quantity of outputs.
GurunES

4. Test : What is the extensive growth ?
the extensive growth is (several possible answers)
❏ based on the labor productivity
❏ based on the innovations
❏ based on the imports
❏ based on an increasing use of each factor of production
GurunES

5. Test : What is the extensive growth ?
the extensive growth is (several possible answers)
❏ based on the labor productivity
❏ based on the innovations
❏ based on the imports
❏ based on an increasing use of each factor of production
GurunES

6. Name the 3 inputs (or 3 factors of production)
6
?
3inputs
?
?
GurunES

7. correction
7
Labor
Natural
resources
Capital
outputs (GDP)
3inputs
The extensive growth is based on the
expansion of the quantity of inputs in order to
increase the quantity of outputs.
GurunES

8. using more factors of production to get an extensive growth
88
Labor
Natural
resources
Capital
The extensive growth is based on the expansion of the quantity of inputs in order to increase the quantity
of outputs. But the costs of production remain high and the ability to raise the quantity of inputs is limited.
GurunES

9. b/ Increasing the labour productivity to get an intensive growth
99
The intensive growth is based on the increase of the labor productivity in order to increase the
quantity of outputs and / or reduce the production costs.
Labor
Natural
resources
Capital
capital - labor substitution
→ more capital-intensive output
GurunES

10. increase of the labor productivity
10
Productivity can be improved by using technology that allows more to be done in less time.
Productivity is an average measure of the efficiency of workers (labor factor) :
quantity of labor input
output
productivity =
2 bookcases
per employee
productivity =
3 bookcases
per employee
increase of
the labor
productivity
GurunES

11. Test : How to measure the productivity?
Before the mechanisation, 10 000 employees were needed to build 25 000 cars. After the mechanisation,
8 000 employees produce 72 000 cars. Choose the right answer(s) :
❏ Before the mechanisation, 2.5 employees produced 1 car in average
❏ Before the mechanisation, 1 employee produced 2.5 cars in average
❏ After the mechanisation, each employee produce 9 cars in average
❏ After the mechanisation, each employee produce 12 cars in average
❏ The mechanisation creates productivity gains
GurunES

12. Test : How to measure the productivity?
Before the mechanisation, 10 000 employees were needed to build 25 000 cars. After the mechanisation,
8 000 employees produce 72 000 cars. Choose the right answer(s) :
❏ Before the mechanisation, 2.5 employees produced 1 car in average
❏ Before the mechanisation, 1 employee produced 2.5 cars in average
❏ After the mechanisation, each employee produce 9 cars in average
❏ After the mechanisation, each employee produce 12 cars in average
❏ The mechanisation creates productivity gains
GurunES

13. Test : How to increase the labor productivity?
Labor productivity may be increased by
❏ the capital-labor substitution
❏ increasing the number of workers by 25 % while production increases by 12%
❏ increasing the wages
GurunES

14. Test : How to increase the labor productivity?
Labor productivity may be increased by
❏ the capital-labor substitution
❏ increasing the number of workers by 25 % while production increases by 12%
❏ increasing the wages
GurunES

15. Distribution of productivity gains thanks to the reduction of costs
15
lower
prices
higher
profits
higher
wages
higher
purchase
power
More
investment
Increasing
production
(output)
More
consumption
economic growth
GurunES

16. Distribution of productivity gains thanks to the reduction of costs
16
lower
_____
higher
profits
higher
_______
higher
purchase
power
More
________
Increasing
___________
(output)
More
__________
economic growth
Fill the blanks !
GurunES

17. “Productivity isn’t everything, but in the long run it is almost
everything. A country’s ability to improve its standard of living
over time depends almost entirely on its ability to raise its
output per worker.”
Paul Krugman, The Age of Diminishing Expectations (1994)
17
comment on this quotation :
GurunES

18. c/ getting growth with innovations
18
Actually, a great part of the economic growth rate comes from a general improvement in production,
thanks to the technical progress. Nobody can really say which factor of production (labor or capital) is the
main source of the growth… Actually, both together create the growth !
That’s why the Multi- factor productivity (MFP) is calculated.
The so-called multi-factor productivity (MFP) measures the residual growth that cannot be explained
by the rate of change in the services of labour, capital and intermediate outputs, and is often interpreted
as the contribution to economic growth made by factors such as technical and organisational
innovation.
Multifactor productivity growth refers to the contribution of :
● technology,
● advances in knowledge,
● improvements in management, or production techniques
GurunES

19. Getting growth with innovations :
how the e-business upsets all the distribution circuit
19
technical innovation
the distribution circuit is
completely
transformed
(not only “improved”)
Labor factor Capital factor
deep impact on...
the work organisation
must be rethought
Perfect inventory
management and
logistics skills rather
than sales skills
a super efficient
transport system is
needed
a super efficient website
rather than a corner shop
drones self-drive cars
New activities → new jobs → growth (+) BUT outdated activities and jobs are destroyed → growth (-)
The Multi-Factor
Productivity (MFP)
increases
GurunES

20. Getting growth with innovations : how Schumpeter describes it.
20
The "gale [storm] of creative destruction" describes the "process of industrial
mutation that incessantly revolutionizes the economic structure from within,
incessantly destroying the old one, incessantly creating a new one".
Find another example that might reflect this quotation. Build
a reasoning from this example, with these economic words :
● labor factor
● capital factor
● productivity, multi-factor productivity (MFP)
● economic growth
● innovation
GurunES

21. d/ Accumulating capital (in different forms) to create a self-maintained growth
All depends on the ability of accumulating capital in different forms :
21
GurunES
Human capitalmanufactured capital natural capital
social capitalfinancial capital
the institutions that
maintain / develop
human capital in
partnership with
others : families,
communities,
businesses, trade
unions, schools,
and voluntary
organisations.
people's health,
knowledge, skills
and motivation. All
these things are
needed for
productive work.
material goods or fixed
assets which contribute
to the production
process rather than
being the output itself –
e.g. tools, machines
and buildings.
It is enabling the other
types of Capital to be
owned and traded. It
has no real value itself
but is representative of
natural, human, social
or manufactured capital;
e.g. shares, bonds or
banknotes.
any stock or flow of
energy and material
that produces
goods and services.
It includes
resources :
renewable and
non-renewable
materials
positive externalities
self-maintained growth

22. d/ Accumulating capital (in different forms) to create a self-maintained growth
All depends on the ability of accumulating capital in different forms : but what is what ?!
22
GurunES
Human capitalmanufactured capital natural capital
social capitalfinancial capital

23. d/ Accumulating capital (in different forms) to create a self-maintained growth
23
GurunES
Human capital
manufactured capital
natural capital
social capital
financial capital
Accumulating different
types of capital create
number of positive
externalities education
knowledge
health
government effectiveness
absence of violence
democracy
public infrastructure
political stability
breathing air
drinkable water
innovationssavingsincomes
goods machines
wifi laws
increase of Multi-Factor
productivity

24. e/ Particular importance of the institutions
A patent of invention is an intellectual property right. It is a rule , guaranteed by the
institutions, that protects your invention or your artistic creation.
Without such a rule, anybody could copy your invention and the copycat corporations
could sell the same product at lower prices, since they don’t need to finance the
investments in research you have to finance !
Without this rule, no more trade ! No more business ! No more growth !
24
the tale of patents of inventions and the copycats
GurunES

25. e/ Particular importance of the institutions
25
Comment on these graphics. What economic problem does it illustrate ?
http://www.musicbusinessworldwide.com/downloads-have-falle
n-24-in-the-past-year-in-the-us-market/
GurunES

26. key things to memorize
26
parts of this chapter key things to memorise
a/ Using more factors of
production
3 production factors : labor / natural resources / capital
used to produce an output
More factors → more output = extensive growth
But there are limits : natural resources are not extensive, neither the labor factor.
b/ Increasing the labour
productivity to get an
intensive growth
The labor productivity measures the efficiency of workers.
Improving the labor productivity → reduction of costs →
● lower prices and higher wages → higher purchase → more consumption
● higher profit → more investment → more production
More consumption and more production mean more economic growth.
c/ getting growth with
innovations
Actually the economic growth is based on the productivity of a mix of capital and labor factors as a result
of innovations.
It is better measured by the MFP (MultiFactors Productivity).
Example of the numerous consequences of the e-business on the economic growth.
d/ Accumulating capital (in
different forms) to create a
self-maintained growth
Nowadays no more labor factor and capital factor : we just speak about 5 types of capital (as a wealth) :
human capital, manufactured capital, natural capital, social capital, financial capital.
Accumulating these 5 types of capital creates a self maintained growth.
e/ Particular importance of
the institutions
the economy needs rules in order to encourage capital owners to accumulate more capitals.
Example of illegal music and video downloading.
GurunES

27. The sources of the economic growth
p27
end of
How to get a stronger economic growth ?
chapter 2
GurunES