scan0001 - TERP NOTES © 2007 BookHolders, LLC. ALL RIGHTS...

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Unformatted text preview: TERP NOTES © 2007 BookHolders, LLC. ALL RIGHTS RESERVED ANY ATTEMPT TO REPRODUCE THESE NOTES IS PUNISHABLE BY LAW 4509A COLLEGE AVE. 301.209.9313 HTTP://NOTES.BDGKHOLDERS.COM ECONZBI OZIOWOS . 1 OF 2 SHEA Vocab: PCRGDP— per capita real gross domestic product Y- output -Problem set 2 now available at: -www.econ.umd.edu!~zhangj -Answer key to Problem set 1 will be available on website tomorrow afternoon -Long-run growth -best measure: long run avg. annual growth rate (trend growth rate) of country’s per-capital RGDP- Real Gross Domestic Product -3“‘ world countries have relatively little or no PCRGDP* growth *= per capita real gross domestic product —Rule of thumb: -growth of PCRGDP = (growth of RGDP — growth of population) -RGDP needs to grow faster than population for countries living standards to increase -this is why China has a one child policy -For US, since 1970 tred growth rates are: -RGDP approx 3.1% population appmx 1.3 % -growth of PCRGDP approx. 1.8% -Growth in PCRGDP has led to enormous increases in living standards in advanced countries since 1300 -How can such low growth of PCRGDP (2%) be responsible for dramatic standard of living improvements? -the rule of 70- suppose some variable grows at an annual trend rate of 3%, then the level of that variable will double approx. once every T0! growth years —ie: For US. growth of PCRGDP is approx. 2% -living standards will double every 701 2 = 35 years -Little differences in trend growth of PCRGDP add up over time «ie: imagine US. and Canada have the same living standards -from today onwards, growth PCrGDP = 2% in US. 1% in Canada In 70 years: U.S.’s living standards have quadrupled Canada’s living standards have only doubled That is, US. PCRGDP is twice that of Canada -Fact: economic growth is a recent phenomenon in human history -very little growth of PCRGDP prior to 1800, but rapid growth in some countries since then -Exceptions: invention of the printing press, trade routes to Asia both occurred before THESE NOTES DO NOT REPRESENT THE PROFESSOR’S LECTURE VERBATIM TERP NOTES © 2007 BookHolders, LLC. ALL RIGHTS RESERVED ANY ATTEMPT TO REPRODUCE THESE NOTES IS PUNISHABLE BY LAW 4509A COLLEGE AVE. 301.209.9313 HTTPif/NOTES,EGGKHOLDERS.COM ECONZOI 02f07l08 2 OF 2 SHEA 1800 and resulted in rapid growth Fact: wide variation in levels and growth rate of PCRGDP across COuntries -success stories: Japan (3.1% PCRGDP), most European (2-2.5%), S. Korea, Taiwan (ZS-3%) -failures: Bangladesh, India (1%) - they were failures through 1987, but have recently turned it around -Argentina «1” world COuntry in 1900, growth of PCRGDP now about 1% -Data for growth of RGDP since 1980 - winners: China, Bangladesh, India - losers: former USSR (and any countries that were a part of it) -What causes growth in PCRGDP? (Y 1 population): (Y I hours worked) it (hours workedl population) i i i PCRGDP labor productivity labor force mobilization -Growth of PCRGDP = (growth of labor production) + (growth of labor mobilization) *Over long-run, growth of mobilization is < 0 in US. and other advanced countries Why? - child labor laws - declining retirement ages - longer lifespans - shoter work weeks Therefore, growth in PCRGDP in most countries is due entirely to the growth of labor productivity. -What causes labor productivity growth? ~Investment in: 1. physical capital (new machinery, buildings) 2. human capital (education, skills) 3. technological progress (new progress, production processes) The implication of this is, it’s a trade-off between current consumption and long-run growth because: - our resources are finite - Y devoted to making investment goods can’t be devoted to consumer goods - people going to school are not available to make consumer goods today THESE NOTES DO NOT REPRESENT THE PROFESSOR’S LECTURE VERBATINI ...
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scan0001 - TERP NOTES © 2007 BookHolders, LLC. ALL RIGHTS...

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