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Chapter 7 Study Notes / Summary These are notes made based on the chapter in the book that the course uses - very helpful, covers every little section of chapter and holds important points.

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ECON 102
Jing Ye Shi

Chapter 7 Production and Growth Introduction large differences in income are reflected in the differences in the quality of life within a country there are large changes in the standard of living o ex: Canadas real GDP per person has grown by 2% per year double income in 35 o ex: Singapore, South Korea, Taiwan, income risen about 7% per year double income in 10 o ex: Chad, Ethiopia, Nigeria, average income stagnant so, growth rates vary from country to country growth rates that seem small become large when they compound for many years accumulation of a growth rate over time important questions in macroecon: what explains diverse experiences? how can rich countries maintain high standard of living? what policies should the poor countries pursue to promote growth? previously: o GDP - measure of total income earned and total expenditure on economys output of g&s o real GDP good gauge of economic prosperity o growth of real GDP good gauge of economic progress this chapter: long run determinants of the level of growth of real GDP three step process of chapter: o examine international data on real GDP/person o role of productivity the amount of g&s produced for each hour of a workers time and in particular how productivity is the determinant of a nations of standard of living o link between productivity and economic policies a nation pursues Economic Growth around the World (international data) Refer to Table 7.1 [page 141] again, real GDP growth measures how rapidly real GDP per person grew in the typical year growth rates in chart show not the actual rate per year, since it rose in some years more than in others, it ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP/person the data shows that worlds richest countries have no guarantee they will stay the richest and worlds poorest are not doomed forever in poverty Productivity: Role and Determinants Importance of Productivity Productivity refers to the amount of goods and services produced from each hour of a workers time a countrys standard of living depends on its ability to produce goods and services productivity is a key determinant in the standard of living a nation can enjoy a high standard of living only if it can produce a large quantity of g&s model: Robert Crusoes novel [page 142-143] seeing the link between standard of living -> and productivity is first step o but: why are some economies so much better at producing g&s than others? Determinants of Productivity many factors determine productivity Physical Capital per Worker o also known simply as capital o the stock of equipment and structures used to produce goods and services, denoted K o recall: factors of production inputs used to produce goods and services labour, capital, etc. o capital is a produced factor of production capital is an input into the production process that in the past was an output from the production process ex: woodworker using a lathe to make a leg of a table, earlier the lathe was output of a firm and the lathe manufacturer used other equipment to make its product and so on o thus capital is a factor of production used to produce all kinds of goods and services, including more capital Human Capital per Worker o the knowledge and skills that workers acquire through education, training and experience o productivity is greater when the average worker has more human capital (education, skill, etc.) o human capital includes skills accumulated from early childhood, grade school, high school, college/university and on the job training o less tangible than physical capital but very alike increases production also human capital is a produced factor of production producing human cap. requires inputs in forms of teachers, libraries and students time Natural Resources per Worker o the inputs into production that are provided by nature, such as land, rivers and mineral deposits o natural resources take two forms: renewable (forests) and non-renewable (oil) o differences in natural resources are responsible for some differences in standard of living in the world: ex: Canada was driven in part by the large supply of land suited for agriculture and by the abundance of minerals, forests and pools of oil and natural gas ex: Kuwait and Saudi Arabia rich because of oil o but not necessary: ex: Japan is one of the richest countries in the world but has very little natural resources uses international trade to get the resources it needs and exports manufactured goods to economies rich in natural resources Technological Knowledge o society
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