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Economics Textbook Notes February 6th, 2012
Chapter 7 – Production and Growth
The average person in a rich country has an income more than ten times as high as the
average person in a poor country.
An economy’s GDP measures both the total income earned in the economy and the total
expenditure on the economy’s output of goods and services. Although imperfect, the level
of real GDP is a good gauge of economic prosperity, and the growth of real GDP is a good
gauge of economic progress.
Long run determinants of the level and growth of real GDP – three steps:
1. Examine international data on real GDP per son – data will give some sense of how
much the level and growth of living standards vary around the world.
2. Example the role of productivity – the amount goods and services produced for each
hour of a worker’s time.
3. Consider the link between the productivity and the economic policies that a nation
Why productivity is so important
Productivity: the quantity of goods and services produced from each hour of a worker’s
The total income earned by everyone in the economy
The total expenditure on the economy’s output of goods and services
How productivity is determined
Physical capital per worker
Physical capital: also known as capital, it is the stock of equipment and structures that are
used to produce goods and services.
Inputs used to produce goods and services – labor, capital, etc are called the factors of
Capital is an input into the production process that in the past was an output from the
Human capital per worker
Human capital: the knowledge and skills that workers acquire through education, training