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Ch18outline - Ch 18 outline I Introduction a Economic...

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Ch. 18 outline I. Introduction a. Economic growth -an increase in the total output of an economy. Defined by some economists as an increase of real GDP per capita b. Modern economic growth - the period of rapid and sustained increase in real output per capita that began in the western world with the industrial revolution. c. It is through economic growth that living standards improve, but growth brings change. II. The growth process: from agriculture to industry a. Physical capital- material things used in the production of goods and services b. Human capital- knowledge, skills, and talents c. Both kinds of capital made them more efficient and increased their productivity. d. Economic growth expands those limits and shifts society’s production possibilities frontier out to the right. e. Growth comes from bigger workforce and more productive workers. Higher productivity comes from tools, a better-educated and more highly skilled workforce, and increasingly from innovations and technical change and newly developed products and services. III. The sources of economic growth a. Economic growth occurs when either: 1. Society acquires more resources 2. Society discovers ways of using available resources more efficiently. b. For economic growth to increase living standards, the rate of growth must exceed the rate of population increase c. Economic growth is generally defined as an increase in real GDP per capita. d. Aggregate production function - the mathematical representation of the relationship between inputs and national output, or gross domestic product. e. An increase in GDP can come about through: 1. An increase in the labor supply 2. An increase in physical or human capital 3. An increase in productivity (the amount of product produced by each unit of capital or labor)
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f. An increase in Labor supply 1. An increase in labor supply can generate more output. 2. If the capital stock remains fixed while labor increases, the new labor will likely be less productive than the old labor this effect is called diminishing returns 3. Diminishing returns can also occur if a nation’s capital stock grows more slowly than its workforce 4. Capital enhances workers’ productivity 5. Growth in the labor force, without a corresponding increase in the capital stock or technological change, might lead to growth of output but declining productivity and a lower standard of living. 6. Labor productivity - output per worker hour; the amount of output produced by an average worker in 1 hour.
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