ECN 204 Chapter Notes - Chapter 7: Michael Kremer, Human Capital Flight, Economic Stability
1 May 2012
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Fact 1: there are vast differences in living standards around the world. Fact 2: there is also great variation in growth rates across countries. A country"s standard of living depends on its ability to produce goods & services. This ability depends on productivity - the average quantity of goods and services produced from each hour of a worker"s time. Y = real gdp = quantity of output produced. When a nation"s workers are very productive, real gdp is large and incomes are high. When productivity grows rapidly, so do living standards. The large differences in living standards we observe across countries or over times, we must focus on the prediction of goods an services. [physical] capital (k) - the stock of equipment and structures used to produce goods & services. Productivity is higher when the average worker has more capital (machines, equipment, etc. )
