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ECON102 Lecture Notes - Foreign Portfolio Investment, Graph Of A Function, Diminishing Returns

4 pages95 viewsWinter 2013

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Maryann Vaughan

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Incomes and Growth Rates Around the World
3:13 PM
Great variation in both growth rates and standards of living around the world
Poor countries are not necessarily doomes to poverty forever.
o Singapore - incomes low in the 1960s and are high now
Rich countries may be overtaken by poorer but faster growing countries
3:25 PM
A country's standard of living depends on its ability to produce goods and services
This ability depends on productivity
o Th eaverage quantity of goods and services produced from each hour of a worker's time
Y = real GDP = quantity of output produced
L = quantity of labour
Y/L = productivity (output per worker)
A nation with productive workers has a large real GDP and incomes are high
When productivitiy grows rapidly, so do living standards
Physical Capital Per Worker
Equipment and strucures used to produce g&s is called physical capital (K)
K/L = Capital per worker
Productivity is higher when the average worker has more capital
i.e. an increase in K/L causes an increse in Y/L
Labour's productivity is further enhanced if it works with modern and sophisticated equipment
Human Capital Per Worker
Human Capital (H):
o The knowledge and skills workers aquire through education, training, experience
o H/L = the avverage worker's human capital
o Productivity is higher when the average worker has more human capital
o An increase in H/L causes an increase in Y/L
o The size and skill of the labour force will affect the total output.
o Workers who are healthy, happy and educated are faster and more efficient than those who
are malnourished, dispirited and illiterate
Natural Resources per Worker
Natural resources (N)
o The inputs into production that nature provides, e.g. land, mineral deposits
Other things equal, more N allows a country to produce more Y. in per worker terms, an increase
in N/L causes an increase in Y/L
Some countries are rich because they have abundant resources ( Saudi Arabia has lots of Oil)
But countries need not have much N to be rich (e.g. Japan imports the N it needs)
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