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Macro (18th Jan,2012).docx

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ECON 1010
Xueda Song

th Lecture Notes (18 Jan, 2012) The growth rate of real GDP per person can also be calculated Real GDP per person grows only if real GDP grows faster than the population Sustained growth of real GDP per person can transform a poor/society into a wealthy one. Suppose a country’s pop grow by 2% a year at the same time its real GDP grows by 5 percent a year. The growth rate of real GDP per person is approximately to 5%-2%= 3% The Rule of 70 It is used to estimate how long it will take the level of any variable to double Example A country’s current growth rate of real GDP per person is 2 percent a year. How long will it take to double real GDP per person? -Real GDP per person doubles in 35 years ( 70 divided by 2 = 35) Growth in the Canadian Economy - Canada experienced the slowest economic growth in 1980s. -Canada experienced the highest economic growth in the 1960s. -In 1980s, Canada had the second highest real GDP per person. The United States had the highest real GDP per person. Total Amount of Labor Labour is measured in hours Aggregate hours -The total number of hours worked by all the people employed during a year -Aggregate hours have an upward trend , and they fluctuate with the business cycle. The Economy wide average money wage rate Total amount of labour income / Total aggregate hours The Aggregate Production function A relationship that shows how real GDP changes when the quantity of labour changes with no changes in the capital stock of technology. -More Labour = more output | Lower labour = lower output - An increase in the quantity of labour increases the real GDP ( A movement along the production function). The decreasing slope of the aggregation production function reflects diminishing returns to labor. Along the aggregate production function an addition unit of labour produces less output than the previous unit. We use our most productive labour FIRST hour (e .g studying for 10 hours you lose motivation) The real wage rate is the quantity of goods and services that an hour of labour can buy The money (nominal) wage rate is the number of dollars an hour of labour earns. Wage= $1 Price of milk= $2 W/P = ½ = 0.5 units of milk Real Wage = (Nominal wage / Price Level) x 100 The real wage rate influences the quantity of labour demanded and the quantity of labour supplied Real wage rate decreases Quantity of labour demanded increase Real wage rate increases Quantity of labour supplied increases REFER TO PAGE 16 Lecture NOTES WEB The higher the real wage= the lower the demand for labour ( vice versa) The lower real wage = the less the
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