ECON-UA 1 Lecture Notes - Lecture 17: Potential Output
30 Oct 2016
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Long run trend rate at which real gdp (yfe or potential gdp) grows over time we already looked at: increasing employment (labor supply grows as population grows) increasing investment (thereby increasing capital stock and technology) Now we look at sustained growth in gdp (year after year) Why is economic growth important: living standards (real gdp/population = real gdp per capita) gives us a crude measure of living standards. *whenever real gdp grows faster than population, living standards tends to rise: political, social goals (improving health care, education by sacri ce personal living standards) Rule of 70: if some variable is growing at z% per year, it will double in approximately 70/z years ie. gdp per capita. *even small changes in growth rates make a huge di erence over time. 1948-1973 us real gdp capita grew at 2. 5% per year. ***total output = productivity x aughrs x epr x population. =% a + %b + % c+ : % total output.
