CAS EC 102 Lecture Notes - Lecture 6: Technological Change, Production Function, Diminishing Returns
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Growth is the change in real gdp over time. Growth rate = the annual percentage change in real gdp. But what we really care about is the change in real per capita gdp. It is the growth rate of real per capita that correlates most closely with living standard changes. Productivity = the quantity of goods and services that can be produced by one hour of work. Person hour -- one worker working one hour. Country a produces b of gdp with 1b person hours of labor. Country b produces b of gdp with 5b person hours of labor. Country a productivity = 10b/1b = per person hour. Country b productivity = 25b/5b = per person hour. A country"s standard of living depend on its ability to produce g&s. This ability depends on productivity, the average quantity of g&s produced per hour of labor input.
