ECON 1110 Chapter Notes - Chapter 26: Potential Output, Real Interest Rate, Capital Accumulation
13 Mar 2016
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Economic growth, which promises more goods and services tomorrow, is achieved by consuming fewer goods today. This sacrifice of current consumption is an important cost of growth. The process of economic growth renders some machines obsolete and also leaves the skills of some workers obsolete. Major determinants of growth: growth in the labour force, growth in human capital. Human capital the set of skills workers acquire through formal education and on-the-job training: growth in physical capital, technological improvement. In the short-run macro model, real gdp varies to determine equilibrium, in which desired saving equals desired investment. In the model"s long-run version, real gdp is equal to y* and the interest rate varies to determine equilibrium. In the long-run version of our macro model, with real gdp equals to y*, the equilibrium interest rate is determined where desired national saving equals desired investment.
