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Chapter 6 Review.docx

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ECN 204
Thomas Barbiero

Chapter 6 Review Summary: 6.1 – Economic growth  A nation’s economic growth can be measured either as an increase in real GDP over time or as an increase in real GDP per capita over time. o Real GDP in Canada has grown at an average annual rate of about 3.3 percent since 1961; real GDP per capita has grown at roughly a 2.1 percent annual rate over that same period.  Sustained increases in real GDP per capita did not happen until the late 1700s. o When England and then other countries began to experience modern economic growth, which is characterized by institutional structures that encourage savings, investment, and the development of new technologies. o Institutional structures that promote growth include:  Strong property rights  Patents  Efficient financial institutions  Education  Competitive market system 6.2 – Modern economic growth  Because some nations have experienced more than two centuries of economic growth while others have begun to experience economic growth only recently, some countries today are much richer than other countries.  It is possible, however, for countries that are currently poor to grow more quickly than countries that are currently rich because the growth rates of rich-country GDPs per capita are limited to about 2 percent per year.  In order to continue growing, rich countries must incent and apply new technologies.  By contrast, poor countries can grow much more quickly because they can simply adopt the institutions and cutting-edge technologies already developed by the rich countries. 6.3 – Determinants of growth  The determinants of economic growth responsible for changes in growth rates include: o Four supply factors:  Increases in the quantity and quality of natural resources  Increases in the quantity and quality of human resources  Increases in the supply (or stock) of capital goods  Improvements in technology o One demand factor:  Increases in total spending o One efficiency factor  Increases in how well an economy achieves allocative and productive efficiency  The growth of a nation’s capacity to produce output can be illustrated graphically by an outward shift of its production possibilities curve.  Growth accounting attributes increases in real GDP either to increase in the amount of labour being employed or to increases in the productivity of the labour being employed. o Increases in Canada’s real GDP are mostly the result of increases in labour productivity. o The increases in labour productivity can be attributed to:  Technological progress  Increases in the quantity of capital goods per worker  Improvements in the education and training of workers  The exploitation of economies of scale  Improvements in the allocation of labour across different industries  Over long time periods, the growth of labour productivity causes an economy’s growth of real wages a
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