Ch08_macro

Ch08_macro - Chapter 8: Economic Growth Objectives: Define...

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1 Chapter 8: Economic Growth Objectives: Define and calculate the economic growth rate and explain the implications of sustained growth Describe the economic growth trends in the United States and other countries and regions Identify the main sources of economic growth Explain how we measure the effects of the sources of economic growth and identify why growth rates fluctuate Explain the main theories of economic growth
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Transforming People’s Lives Real GDP per person in the United States almost tripled between 1960 and 2005. What causes the growth in production, income, and living standards? Elsewhere, notably in China and other parts of Asia, growth is even faster; and technology 2,000 years old coexists with the most modern.
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The Basics of Economic Growth Economic growth is the sustained expansion of production possibilities measured as the increase in real GDP over a given period. The economic growth rate is the annual percentage change of real GDP, and it tells us how rapidly the total economy is expanding.
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The Basics of Economic Growth The standard of living depends on real GDP per person. Real GDP per person is real GDP divided by the population. Real GDP per person grows only if real GDP grows faster than the population grows.
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The Basics of Economic Growth The Magic of Sustained Growth The Rule of 70 states that the number of years it takes for the level of a variable to double is approximately 70 divided by the annual percentage growth rate of the variable.
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The Basics of Economic Growth Applying the Rule of 70 A variable that grows at 2 percent a year doubles in 35 years. A variable that grows at 7 percent a year doubles in 10 years.
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Economic Growth Trends (U.S.)
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Economic Growth Trends Real GDP Growth in the World Economy Japan grew rapidly in the 1960s, slower in the 1980s, and even slower in the 1990s. Growth in Europe Big 4, Canada, and the United States has been similar.
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Economic Growth Trends The gaps between real GDP per person in the United States and in poorer countries have widened.
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Economic Growth Trends China is growing very rapidly. Other formerly low- income economies— Korea, Taiwan, Singapore, and Hong Kong are examples— have grown very rapidly and have caught up or are catching up with the United States.
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The Sources of Economic Growth Real GDP growth contributes to improvements in our standard of living. But our standard of living improves only if we produce more goods and services per person. We begin by dividing real GDP growth into the forces that increase: Aggregate hours Labor productivity
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The Sources of Economic Growth Aggregate Hours Aggregate hours, the total number of hours worked by all the people employed, change as a result of: 1. Working-age population growth 2. Changes in the employment-to-population ratio 3. Changes in average hours per worker Population growth increases aggregate hours and real GDP, but to increase real GDP person, labor must become more productive.
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Ch08_macro - Chapter 8: Economic Growth Objectives: Define...

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