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Chapter 7

Chapter 7 - Production and Growth.docx

4 Pages

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ECN 204
Christos Shiamptanis

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Chapter 7Production and GrowthEconomic Growth around the WorldThe growth rate measures how rapidly real GDP per person grew in a typical yearIt ignores shortrun fluctuations around the longrun trend and represent an average rate of growth for real GDP per person over many yearsThe world richest countries have no guarantee they will stay the richest and the worlds poorest countries are doomed forever to remain in povertyWhy is Productivity ImportantProductivity refers to the quantity of goods and services that a worker can produce for each hour of workProductivity is the key determinant of growth in living standards and that growth in productivity is the key determinant of growth in living standardsRemember GDP measures the total income and expenditure A nation can enjoy a high standard of living only if it can produce a large quantity of good and servicesCanadians live a better live than many other people because Canadian workers are more productive than otherHow is Productivity DeterminedThe determinants of productivity are calledPhysical Capital the stock of equipment and structure that are used to produce goods and servicesFactors of Production Capital Labour and so onHuman Capital is the economic terms for the knowledge and skills the workers acquire through education training and experienceNatural Resources per Worker the inputs into the production of goods and services that are provided by nature such as land river and mineral depositsThere are two forms renewable and nonrenewableRenewable the thing can be reuse over and over and over again ex ForestNonrenewable the thing cannot be used after being used once ex OilNatural resources are not necessary for an economy to be highly productive in producing goods and services Technological Knowledge the understanding of the best ways to produce goods and services is the process of effectively using the available technologyHenry Ford introduced production in assembly linesThe secret recipe for making its famous soft drinkECONOMIC GROWTH AND PUBLIC POLICYThe Importance of Saving and InvestmentIf the economy produces a large quantity of new capital goods then tmrw it will have a larger stock of capital and be able to produce more of all types of goods and servicesTherefore we must invest more resources now for more future productivityDiminishing Returns and the CatchUp EffectDiminishing Returns as the stock of capital rises the extra output produced from an additional unit of capital falls When workers already have a large quantity of capital to use in producing good and services an additional unit of capital increase their productivity only slightly
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