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Chapter 7

Chapter 7 - Production & Growth

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Ryerson University
ECN 204
Eric Kam

thWednesday February 8 2012 Chapter 7 Production and Growth Incomes and Growth around the World FACT 1 There are vast differences in living standards around the world FACT 2 There is also great variation in growth rates across countries Since growth rates vary the country rankings can change over timePoor countries are not necessarily doomed to poverty forever Example Singapore incomes were low in 1960 and are quite high nowRich countries cant take their status for grantedThey may be overtaken by poorer butfastergrowing countriesProductivity one of the Ten Principles from Chap 1A countrys standard of living depends on its ability to produce goods and services This ability depends on productivity the average quantity of gs produced from each hour of a workers time Yreal GDPquantity of output produced Lquantity of labourYL productivity output per workerWhy Productivity Is So Important When a nations workers are very productive real GDP is large and incomes are high When productivity grows rapidly so do living standards What then determines productivity and its growth rate Physical Capital per Worker The stock of equipment and structures used to produce gs is called physical capital denoted K KLcapital per worker Productivity is higher when the average worker has more capital machines equipment etcExample an increase in KL causes an increase in YLHuman Capital per Worker Human capital Hthe knowledge and skills workers acquire through education training and experience HLthe average workers human capital Productivity is higher when the average worker has more human capital education skills etcExample an increase in HL causes an increase in YLNatural Resources per Worker Natural resources Nthe inputs into production that nature providesExample land mineral deposits Other things equal more N allows a country to produce more Y In perworker terms an increase in NL causes an increase in YL Some countries are rich because they have abundant natural resources Example Saudi Arabia has lots of oil
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