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Chapter 7

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ECO1102Introduction to MacroeconomicsChapter 7Chapter 7 ProductionGrowthA countrys standard of living depends on its ability to produce goods and servicesWithin a country there are large changes in the standard of living over timeIn Canada over the past century average income as measured by real GDP per person has grown by about 2 percent per yearProductivity refers to the amount of goods and services produced for each hour of a workers timeA nations standard of living is determined by the productivity of its workersProduction Possibility Frontier PPFShows all combinations of two goods that an economy can possibly produce given its resources and technologyIllustrates the concepts of tradeoff and opportunity cost efficiency and inefficiency unemployment and economic growthThe concavity of the PPF illustrates increasing opportunity costCompoundingEconomic GrowthAnnual growth rates that seem small become large when compounded for many years Compounding refers to the accumulation of a growth rate over a period of timeFor example 1000 will grow too1640 after 25 years and to 2692 after 50 years with a 2 annual growth rateo2666 after 25 years and to 7107 after 50 years with a 4 annual growth rateGrowth Rate Calculation Utopias GDP per person was o25000 in 1970o40000 in 1995 25 years laterWhat was the rate of growth of GDP per capita in Utopia between 1970 and 1995
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