MacroEconomics Ch25.docx

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Mu- Chun Chen

Ch. 25: Production and Growth A. Economic Growth around the world - real gdp growth rate ignored short term fluctuations B. Productivity: Its role and determinants - Productivity: quantity of goods and services produced from each unit of labor input - Crusoe example of standard of living where his productivity of how much he produced determined his standard of living - Productivity is determined by: o Physical capital: stock of equipment and structures that are used to produce goods and services o Human capital: knowledge and skills workers acquire them through education, training, experience o Nature resources: inputs into the productivity of goods and services provided by nature (renewable & nonrenewable) o Technological knowledge: society’s understanding of the best ways to produce goods and services C. Economic growth and public policy 1. Saving and investment 2. Diminish returns & the catch up effect  diminish returns: property where the benefit from an extra unit of an input declines as the quantity of the input increases - benefits from additional capital becomes smaller and smaller overtime - long run, higher saving rate leads to higher level of productivi
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