ECON 2020 Lecture Notes - Lecture 7: Real Interest Rate, Physical Capital

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6 Feb 2017

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Chapter 11- Measuring Cost of Living
Interest Rates of U.S. Economy
Nominal Interest Rate
Always Exceeds real interest rate
Inflation is variable
Real and Nominal Interest Rates don’t always move together
Periods of deflation
Real exceeds nominal for a short period
Chapter 12- Production and Growth
Economic Growth around the World
Real GDP per person
Living Standard
Vary widely country to country
Growth Rate
How rapidly GDP per person grew every year
Determinants of productivity
Physical capital per worker
Tools and machinery
Human Capital per worker
Knowledge and education
Natural Resources per worker
Ability to use raw materials
Technological Knowledge
Understanding of the best way to produce goods and services
Are natural resources a limit to growth
Fixed supply of nonrenewable resources
Stop economic growth
Force living standards to fall
Technology allows us to progress and avoid these limits
Saving and Investment
Raise future productivity
Invest more current resources in production in capital
Trade off, lower current consumption to save resources
Diminishing Returns
Higher Savings Rate
Fewer resources- used to make consumption goods
More resources- to make capital goods
Capital stock increases
Rising Productivity
More rapid growth in GDP
Benefit from extra unit of an input
Declines as the quality of input increases
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