Lecture-4-5

# Lecture-4-5 - Lecture 4: Introduction to Growth,...

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1 Lecture 4: Introduction to Growth, Unemployment and Inflation Reference - Chapter 6 LEARNING OBJECTIVES 6.1 The definition and causes of economic growth. 6.2 The nature and cause of the business cycle. 6.3 The nature of unemployment and its measurement. 6.4 The definition of inflation and how it is measured. 6.5 About the redistribution effects of inflation

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2 6.1 ECONOMIC GROWTH Measurement: An increase in real GDP occurring over some time period. An increase in real GDP per capita occurring over some time period. Calculated as a percentage rate of growth per quarter (3-month period) or per year. % Change in Real GDP 100 Re Re Re 1 1 2 × ± ² ³ ´ µ - = alGDP alGDP alGDP
3 % 5 100 200 200 210 = × ± ² ³ ´ µ - = REAL GDP PER CAPITA or per capita output Population alGDP Re = Growth in Real GDP per capita = Growth in Real GDP Population Growth In 2001, China’s Real GDP U.S. \$1.1 trillion and Denmark’s \$166 billion Denmark’s Real GDP per capita \$31,090 and China’s \$890

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4 From 1990 to 2001, Madagascar’s Real GDP growth 2.4% and Population Growth 2.9%. So, Growth in Real GDP per capita -0.4%. Growth as a Goal: Growth is a widely held economic goal. The expansion of total output relative to population results in rising real wages and incomes and thus higher standards of living. Growth lessens the burden of scarcity. Arithmetic of Growth: Current Canadian Real GDP is over \$1 trillion. The difference between a 3% and a 4% rate of growth is more than \$10 billion of output each year.
5 Rule of 70 Approx. # of years required to double real GDP = 70 ÷ Annual percentage rate of growth A 3 percent annual rate of growth will double real GDP in about 23 years (=70÷3). Main Sources of Growth: Two Ways to increase an economy’s real output and income: 1) by increasing its inputs of resources, i.e., land, labour, capital and entrepreneurial resources. 2) by increasing the productivity of those inputs

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6 Productivity is a measure of average output or real output per unit of input. Productivity rises when the health, training, education, and motivation of workers are improved; when production is better organized and managed; and labour is reallocated from less efficient industries to more efficient industries. In Canada, about two-thirds of growth comes from more inputs. The remaining one-third results from improved productivity. Growth in Canada: Between 1946 and 2002 real GDP increased more than eightfold from 118.8 billion dollars to 1074.5 billion dollars.
7 Real GDP per capita rose almost fourfold over these years from 9,659 to34,661. Real GDP grew at an annual rate of almost 4 percent between 1950 and 2002. Real GDP per capita increased more

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## This note was uploaded on 06/20/2009 for the course ECN 204 taught by Professor Unknown during the Spring '09 term at Ryerson.

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Lecture-4-5 - Lecture 4: Introduction to Growth,...

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