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Unformatted text preview: Chapter 31 Economic Growth Long-Term Growth Trends Long-term growth trends are the trends in poten ial GDP . t Check out Figure 31.1 on p. 734 of your textbook to study real GDP per person in Canada between 1926 and 2004. During this period, real GDP per person grew 2.2 percent a year, on the average. Real GDP growth has been similar in Canada, the Europe Big 4 (France, Germany, Italy, and the United Kingdom), and the United States since 1960. Growth in Japan was very rapid during the 1960s, slower during the 1980s, and even slower during the 1990s. The Causes of Economic Growth: A First Look The most basic precondition for economic growth is an appropriate incentive system. Three institutions are crucial to the creation of incentives: o Markets o Property rights o Monetary exchange For growth to be persistent, people must face incentives that encourage them to pursue three activities that generate ongoing economic growth: o Saving and investment in new capital o Investment in human capital o Discovery of new technologies Growth Accounting The purpose of growth accounting is to calculate how much real GDP growth results from growth of labour and capital and how much is attributable to technological change. The key tool of growth accounting is the aggregate production function , which we write as Y = F ( L , K , T ). Labor productivity is real GDP per hour of labour. Labour productivity is calculated by dividing real GDP, Y by aggregate labour hours, L . The productivity curve is a relationship that shows how real GDP per hour of labour changes as the amount of capital per hour of labour changes with a given state of technology. The figure shows a productivity curve....
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- Spring '09