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Chapter 9

Chapter 9 Book Notes (Got A+ on the test)

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ECON 2010
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Chapter9BookNotesLongRunEconomicGrowthLongRun Economic Growththe process by which rising productivity increases the average standard of livingBest measure of the standard of living is Real GDP per Capita real GDP per personoEconomists rely heavily on comparisons of real GDP per capita bc it is the best means of comparing the performance of one economy over time or the performance of different economies at any particular timeMeasure Long Run Economic growth by increases in real GDP per capita over long periods of timeoUse real GDP rather than nominal GDP to adjust for changes in price level over timeConnectionbetweenEconomicGrowthTechnologyandHumanPhysiologyIncreased Economic GrowthIncreased in Technology Less hours less years better products food etcIncreased better Human PhysiologyHealth More productiveIncreased Economic Growth and so onoIn the future people with live long longer life expectancy and work for a smaller fraction of their livesCalculatingGrowthRateandtheRuleof70Growth Rate of Real GDP or Real GDP per Capita during a particular year is equal to the percent change from the previous yearRealGDPRealGDPYearXPerviousYearGrowthofRealGDPYearX100RealGDPPerviousYearFor longer periods of time use Average Annual Growth Rate which is calculated by averaging the growth rate for each yearRealGDPRealGDPRealGDPYearAYearBYearCAverageAnnualGrowthRateTotalNumberofYearsTo judge how rapidly an economic variable is growing calculate the number of years it would take to double by using the Rule of 7070NumberofYearsDoubleGrowthRateoThe lower the Number of Years to Doublethe greater the increase in standard of livingSmall differences in growth rates can have large effects on how rapidly the standard of living in a country increasesoThe Rule of 70 applies to growth in ANY variable not just real GDPWhatDeterminestheRateofLongRunGrowthLaborProductivityandSupportiveGovernmentPoliciesBasic Point Increases in real GDP per capita depend on increases in labor productivityLabor Productivitythe quantity of goods and services that can be produced by one worker or by one hour of workoWhen analyzing longrun growth labor productivity is measured as output per hour to avoid the effects of fluctuations in workday length and the fraction of the population employedIf the quantity of goods and services consumed by the average person is to increase then quantity of the goods and services produced per hour of work must also increasefor consumers to be able to consume more you must have workers that are more productiveoIncreases in consumption abilityIncreased in Labor ProductivityTwo Key Factors that Determine Labor ProductivityoQuantity of Capital per Hour Worked Capitalmanufactured goods that are used to produce other goods and servicesoEx Computers factory buildings machine tools warehouses and trucksCapital Stockthe total amount of physical capital available in a countryoHighincome countries have more capital stock than lowincome countries or highincome countries in the past As the capital stock per hour worked increases worker productivity increasesoWorkers with better tools are more productive Human Capitalthe accumulated knowledge and skills workers acquire from education and training or from their life experiencesAs human capital per hour worked increases worker productivity increasesIncreases in human capital are particularly important in stimulating economic growthoLevel of Technology Economic growth depends more on Technological Change than on increases in capital per hour workedTechnologythe processes a firm uses to turn inputs into outputs of goods and servicesTechnological Changean increase in the quantity of output firms can produce using a given quantity of inputsoCan come from many sources such as rearranging factory floors or store layouts but most is embodied in new machinery equipment or software
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