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Lecture 11

ECON 1020 Lecture 11: Lecture 11

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ECON 1020
Ryan A.Compton

lc78 Global Perspective 4.1 shows international comparisons of living standards by making three adjustments to each countrys GDP: o 1. Converts each countrys GDP from it own currency into US dollars o 2. Divides each countrys GDP measured in dollars by the size of its population This gives GDP per capita 3. Purchasing power parity: adjusts for the fact that prices are much lower in some countries than others Saving, Investment, and Modern Economic Growth: In order to raise living standards over time, an economy must devote at least some fraction of its current output to increasing future output Savings: the accumulation of funds that results when people in an economy spend (consume) less than their incomes during a given time period Savings fund investment (through the bank) Investment is important for economic growth Economists distinguish between financial investment and economic investment (in this class we are speaking about economic investment) Investment: spending for the production and accumulation of capital and additions to inventories Financial investment: purchasing financial assets (stocks, bonds, mutual funds) or real assets (houses, land, factories), or constructing such assets, in the expectation of financial gain Economic investment: spending for the production and accumulation of capital and additions to inventories The amount of investment is ultimately limited by the amount of saving The only way that more output can be directed at investment activities is if saving increases Individuals and society must make tradeoffs between current and future consumption Banks and Other Financial Institutions:
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