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Economics 1022A/B Lecture Notes - Demand Curve, Potential Output, Real Wages

Course Code
ECON 1022A/B
Desmond Mc Keon

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Chapter 22
the economic growth rate is the annual percentage change of real GDP
real GDP growth rate= ((real GDP in current year)-(real GDP in previous
year)/real GDP in previous year) x100
the rule of 72 states that the number of years it takes any variable to double
is 72/the annual percentage growth rate of the variable
real GDP per person+ population growth rate=growth rate of real GDP
potential GDP is the quantity of real GDP produced when the quantity of
labour employed is the full-employment quantity
o to determine potential GDP we use a model with two components:
aggregate production function and an aggregate labour market
the aggregate production function tells us how real GDP changes as the
quantity of labour changes
o an increase in labour increases real GDP (LS curve shifts right, real
wage falls, aggregate hours increase)
at the labour market equilibrium, the economy is at full employment
the labour market equilibrium is full employment and on the potential GDP
graph, where the full employment quantity of labour go to Y axis is the
potential GDP
aggregate hours (total # hours worked by all people employed) change as a
result in
o average hours per worker
o employment-to-population ratio
o the working-age population
to increase real GDP per person, labour must become more productive
labour productivity is the quantity of real GDP produced by an hour of labour
o LP=real GDP/aggregate labour hours
o An increase in labour productivity shifts the PF upward
o And an increase in labour productivity increase the demand for labour
so real wage rises, aggregate labour hours increase and the labour
demand curve shifts rightward(increase)