Factors Influencing Economic Growth: Human Capital and Capital Goods
Factors that Lead to
Economic Growth
Economic Growth
Economic Growth
There are
There are
4
4
factors of production that
factors of production that
influence economic growth within a
influence economic growth within a
country:
country:
Investment in
Investment in
human capital
human capital
Investment in
Investment in
capital goods
capital goods
Natural resources
Natural resources
available
available
Entrepreneurship
Entrepreneurship
The presence or absence of these 4
The presence or absence of these 4
factors determine the country’s
factors determine the country’s
Gross Domestic Product
Gross Domestic Product
for the year
for the year
What is Human Capital?
All of the
All of the
skills
skills
, talents, education, and
, talents, education, and
abilities
abilities
that human workers possess and
that human workers possess and
the value that they bring to the
the value that they bring to the
marketplace
marketplace
Examples: computer/
Examples: computer/
reading
reading
/writing/
/writing/
math
math
skills
skills
, talents in music/sports/acting,
, talents in music/sports/acting,
ability to follow
ability to follow
directions
directions
, ability to serve
, ability to serve
as group leader & cooperate with group
as group leader & cooperate with group
members
members
A country’s
A country’s
literacy rate
literacy rate
impacts human
impacts human
capital. It means the
capital. It means the
percent
percent
of the population
of the population
over 15 that can read/write.
over 15 that can read/write.
How does Human Capital
How does Human Capital
Influence Economic Growth?
Influence Economic Growth?
Nations that
Nations that
invest
invest
in the health,
in the health,
education, & training of their people will
education, & training of their people will
have a more valuable workforce that
have a more valuable workforce that
produces more
produces more
goods & services
goods & services
People that have
People that have
training
training
are more likely
are more likely
to contribute to technological advances,
to contribute to technological advances,
which leads to finding better uses of
which leads to finding better uses of
natural resources
natural resources
& producing more goods
& producing more goods
What are Capital Goods?
What are Capital Goods?
All of the goods that are
All of the goods that are
produced
produced
in
in
the country and then used to make
the country and then used to make
other goods & services
other goods & services
Examples: tools,
Examples: tools,
equipment
equipment
, factories,
, factories,
technology,
technology,
computers
computers
, lumber,
, lumber,
machinery, etc.
machinery, etc.
What are some capital goods used in our
What are some capital goods used in our
classroom?
classroom?
Capital Resources
Things that
humans
made
in order to
help
them make
something else
Items such as machines,
factories,
technology
and
supplies
.
Hammers
,
Saws
, Glue
and
tools
are some
examples of capital
goods
Example:
tree
+
steel
=
axe
Tree
and
steel
are
natural
resources but
they were changed
into a
capital
resource
as an
axe
Capital Resources: Factories
Factory: A
building
where things are
made
.
Some factories include:
Bic
(where they make pens and pencils)
Starkist
(where they make cans of Tuna).
Honda
(where they
make
cars)
How do Capital Goods influence
How do Capital Goods influence
Economic Growth?
Economic Growth?
The more
The more
capital goods
capital goods
a country has
a country has
the more goods & services they are
the more goods & services they are
able to produce
able to produce
Money is
Money is
NOT
NOT
a capital good, but
a capital good, but
rather a medium (way) of
rather a medium (way) of
exchange!
exchange!
What are Natural Resources?
What are Natural Resources?
All of the things found in or on the
All of the things found in or on the
earth; “
earth; “
gifts of nature
gifts of nature
”
”
All resources are
All resources are
limited
limited
Examples: land,
Examples: land,
water
water
, sun, plants,
, sun, plants,
time, air, minerals,
time, air, minerals,
oil, etc.
oil, etc.
Natural Resources
Natural
resources
are substances we
obtain from the
land
,
water
,
air
around us
and the
land
itself.
Items that grow or are
produced by
NATURE
How do Natural Resources
How do Natural Resources
Influence Economic Growth?
Influence Economic Growth?
Countries that have a lot of
Countries that have a lot of
natural resources
natural resources
are able to use
are able to use
them to produce goods & services
them to produce goods & services
cheaper
cheaper
than a country that has
than a country that has
to
to
import
import
natural resources
natural resources
Natural Resources Before and After
Natural Resource
Finished Product
Write down what natural, labor and capital
resources does it take to make a house
Resources needed
Items needed to make a car
Natural Resources
Land, Wood, Leather, Steel (frame
of the car), Petroleum, Rubber
Capital Resources
Machines, Plastic, Glass, Mirrors,
lights (bulb), factory
Labor
At least high school graduates
(assembly line) put the car
together, paint
College graduates: manager,
marketing, accountant.
Engineers, scientists,
What is Entrepreneurship?
What is Entrepreneurship?
Entrepreneurs have
Entrepreneurs have
2
2
characteristics
characteristics
that make them different from the rest
that make them different from the rest
of the labor force:
of the labor force:
1.
1.
innovative
innovative
(have creative ideas)
(have creative ideas)
2.
2.
risk taker
risk taker
(use limited resources
(use limited resources
in an innovative way in hopes that
in an innovative way in hopes that
people will buy the product)
people will buy the product)
What is Entrepreneurship?
What is Entrepreneurship?
It can be several things:
It can be several things:
Starting your own business
Starting your own business
Inventing something new
Inventing something new
Changing the way something
Changing the way something
was previously done so that it
was previously done so that it
works better
works better
Entrepreneur
Entrepreneur
: An
individual
in business
who sees an opportunity and is willing to
accept the
personal
, professional, and
financial
risks in
starting
this business
More about Entrepreneurs
What Risk?
Financial: an entrepreneur may
lose
their money when starting a
business
Personal: starting a business is
stressful
and takes many
hours
to start, so you may not see your
family
and friends as much
Professional: a person may be known as a pretty good
cook
in
town, so they start a restaurant. If the restaurant
fails
then
people may
think
that person is a bad cook.
Entrepreneurs
An entrepreneur puts the
natural
, human,
and
capital
resources together in order to
make
money
but they take on a lot of
risk
.
An entrepreneur operates in an
mixed
economy
How does Entrepreneurship
How does Entrepreneurship
Influence Economic Growth?
Influence Economic Growth?
Entrepreneurship
Entrepreneurship
creates
creates
jobs and
jobs and
reduces unemployment
reduces unemployment
Encourages people to take
Encourages people to take
risks
risks
that creates better healthcare,
that creates better healthcare,
education, &
education, &
welfare
welfare
programs
programs
The
The
more
more
entrepreneurs a
entrepreneurs a
country has, the
country has, the
higher
higher
the
the
country’s GDP will be.
country’s GDP will be.
How is Economic Growth
How is Economic Growth
Measured?
Measured?
Economic growth is
Economic growth is
measured
measured
by
by
the country’s gross domestic
the country’s gross domestic
product (GDP) in one year. This
product (GDP) in one year. This
is the
is the
total
total
amount of final goods
amount of final goods
and services produced in one year
and services produced in one year
within a count
within a count
ry
ry
Gross Domestic Product
Gross Domestic Product
GDP is a
GDP is a
measurement
measurement
that countsONLY
that countsONLY
what has been produced
what has been produced
within
within
the
the
country--this doesn’t include products
country--this doesn’t include products
that are
that are
imported
imported
.
.
It is much better for the
It is much better for the
economy
economy
of a
of a
country to produce its
country to produce its
own
own
goods and
goods and
services (this increases the
services (this increases the
country’s GDP).
country’s GDP).
Gross Domestic Product
Measuring the GDP each year can:
Measuring the GDP each year can:
Compare
Compare
one country’s economy to
one country’s economy to
another
another
Check a country’s economic
Check a country’s economic
progress
progress
over time
over time
Show if the economy is
Show if the economy is
growing
growing
or not
or not
Standard of Living
The
higher
a country’s GDP = the
higher
the standard of living for the
people within the country
In order for a country to have an
increasing
GDP, it must
invest
in
human capital through
education
&
training
, and it must produce goods
that have
value
to be sold within the
country or exported.
Summary
To encourage economic growth
To encourage economic growth
and raise the living standards of
and raise the living standards of
its citizens, there must be
its citizens, there must be
investment in human capital and
investment in human capital and
capital goods.
capital goods.
Economic growth is measured by
Economic growth is measured by
increases in real capital per GDP
increases in real capital per GDP
over time.
over time.
How large a nation’s GDP can be is
How large a nation’s GDP can be is
determined by the availability and
determined by the availability and
quality of its natural, human, and
quality of its natural, human, and
capital resources.
capital resources.
To increase economic growth and per
To increase economic growth and per
capita GDP over time requires
capita GDP over time requires
investments in both physical capital
investments in both physical capital
(factories, machines) and human
(factories, machines) and human
capital (education, training, skills of
capital (education, training, skills of
labor force).
labor force).
Factors such as investment in human capital, capital goods, natural resources, and entrepreneurship play a crucial role in determining a country's economic growth. Human capital encompasses the skills and abilities of workers, while capital goods are the tools and equipment used to produce goods and services. Investing in human capital leads to a more productive workforce and technological advancements, contributing to economic growth.
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Presentation Transcript
Factors that Lead to Economic Growth
Economic Growth There are 4 factors of production that influence economic growth within a country: Investment in human capital Investment in capital goods Natural resources available Entrepreneurship The presence or absence of these 4 factors determine the country s Gross Domestic Product for the year
What is Human Capital? All of the skills, talents, education, and abilities that human workers possess and the value that they bring to the marketplace Examples: computer/reading/writing/math skills, talents in music/sports/acting, ability to follow directions, ability to serve as group leader & cooperate with group members A country s literacy rate impacts human capital. It means the percent of the population over 15 that can read/write.
How does Human Capital Influence Economic Growth? Nations that invest in the health, education, & training of their people will have a more valuable workforce that produces more goods & services People that have training are more likely to contribute to technological advances, which leads to finding better uses of natural resources & producing more goods
What are Capital Goods? All of the goods that are produced in the country and then used to make other goods & services Examples: tools, equipment, factories, technology, computers, lumber, machinery, etc. What are some capital goods used in our classroom?
Capital Resources Capital Resources Things that humans made in order to help them make something else Items such as machines, factories, technology and supplies. Hammers, Saws, Glue and tools are some examples of capital goods Example: tree + steel = axe Tree and steel are natural resources but they were changed into a capital resource as an axe
Capital Resources: Factories Factory: A building where things are made. Some factories include: Bic (where they make pens and pencils) Starkist (where they make cans of Tuna). Honda (where they make cars)
How do Capital Goods influence Economic Growth? The more capital goods a country has the more goods & services they are able to produce Money is NOT a capital good, but rather a medium (way) of exchange!
What are Natural Resources? All of the things found in or on the earth; gifts of nature All resources are limited Examples: land, water, sun, plants, time, air, minerals, oil, etc.
Natural Resources Natural resources are substances we obtain from the land, water, air around us and the land itself. Items that grow or are produced by NATURE
How do Natural Resources Influence Economic Growth? Countries that have a lot of natural resources are able to use them to produce goods & services cheaper than a country that has to import natural resources
Natural Resources Before and After Natural Resource Natural Resource Finished Product Finished Product
Write down what natural, labor and capital Write down what natural, labor and capital resources does it take to make a house resources does it take to make a house
Items needed to make a car Natural Resources Land, Wood, Leather, Steel (frame of the car), Petroleum, Rubber Capital Resources Machines, Plastic, Glass, Mirrors, lights (bulb), factory Labor At least high school graduates (assembly line) put the car together, paint College graduates: manager, marketing, accountant. Engineers, scientists,
What is Entrepreneurship? Entrepreneurs have 2 characteristics that make them different from the rest of the labor force: 1. innovative (have creative ideas) 2. risk taker (use limited resources in an innovative way in hopes that people will buy the product)
What is Entrepreneurship? It can be several things: Starting your own business Inventing something new Changing the way something was previously done so that it works better
Entrepreneur Entrepreneur: An individual in business who sees an opportunity and is willing to accept the personal, professional, and financial risks in starting this business
More about Entrepreneurs What Risk? Financial: an entrepreneur may lose their money when starting a business Personal: starting a business is stressful and takes many hours to start, so you may not see your family and friends as much Professional: a person may be known as a pretty good cook in town, so they start a restaurant. If the restaurant fails then people may think that person is a bad cook.
Entrepreneurs An entrepreneur puts the natural, human, and capital resources together in order to make money but they take on a lot of risk. An entrepreneur operates in an mixed economy
How does Entrepreneurship Influence Economic Growth? Entrepreneurship creates jobs and reduces unemployment Encourages people to take risks that creates better healthcare, education, & welfare programs The more entrepreneurs a country has, the higher the country s GDP will be.
How is Economic Growth Measured? Economic growth is measured by the country s gross domestic product (GDP) in one year. This is the total amount of final goods and services produced in one year within a country
Gross Domestic Product GDP is a measurement that countsONLY what has been produced within the country--this doesn t include products that are imported. It is much better for the economy of a country to produce its own goods and services (this increases the country s GDP).
Gross Domestic Product Gross Domestic Product Measuring the GDP each year can: Compare one country s economy to another Check a country s economic progress over time Show if the economy is growing or not
Standard of Living The higher a country s GDP = the higher the standard of living for the people within the country In order for a country to have an increasing GDP, it must invest in human capital through education & training, and it must produce goods that have value to be sold within the country or exported.
Summary To encourage economic growth and raise the living standards of its citizens, there must be investment in human capital and capital goods. Economic growth is measured by increases in real capital per GDP over time.
How large a nations GDP can be is How large a nation s GDP can be is determined by the availability and determined by the availability and quality of its natural, human, and quality of its natural, human, and capital resources. capital resources. To increase economic growth and per To increase economic growth and per capita GDP over time requires capita GDP over time requires investments in both physical capital investments in both physical capital (factories, machines) and human (factories, machines) and human capital (education, training, skills of capital (education, training, skills of labor force). labor force).
Factors of Production or Productive Resources Land or Natural Resources Labor or Human Resources Capital Resources Entrepreneur A tool or machine that helps to make a good or provide a service Example: building/factory, hammer A person who takes a lot of risk and uses the other 3 factors in order to make a profit Examples: Bill Gates, Hannah Montana Items from the Earth Examples: Land, Air, Water, Gold, Natural Gas, Oil People who make a good or provide a service
