Econ Notes 3.31

Econ Notes 3.31 - productivity 7. Potential GDP on average...

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1. Potential GDP or Maximum Capacity GDPdepends on: Qauntity of labor and quality of labor. 2. Quantity of labor depends on: (1) Population growth (avg 1% a yr.) depends on: (i) immagration (ii) Natural growth (2) Labor force Participation (i) Retirement Practices (ii )Female Participation (iii) Demographic age profile (3) Average work week (i) Part time (shrink) (ii) Overtime (lengthen) 3. Quality of labor =productivity=value of output per hour of work 4. Productivity has a cyclical element as it rises during early part of expansion and falls during recession 5. Productivity depends on: (1) Amount of physical capital available per worker which depends on: (i) Buisness fixed investment (ii) Government provided infrastructure (2) Amount of human capital-knowledge and skills-depends on education + training + experience (3) Amount of technological capital-research (4) Managment practices 6. "Supply Side" role of investment refers to its effect of increasing potential GDP by increasing
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Unformatted text preview: productivity 7. Potential GDP on average grows by 3-4 % per year- this is the " speed limit " of the economy i.e. the amount of economic growth possible without creating growth inflation INFLATION-----------------1. Inflation=widespread rise in prices 2. Three Major causes of inflation (1) " GROWTH INFLATION " Inflation caused by economic growth - inflation is an unwelcome byproduct of economic growth (2) " POLICY INFLATION " Inflation caused by economic policy (3) " OUTSIDE INFLATION " Inflation caused by outside the U.S. economy 3. GROWTH INFLATION (1) As production grows there is a need for more inputs of physical capital + labor + materials + finacial calpital (2) Ultimately input shortages develop (3) Then firms must pay more to get the inputs (4) Passed on to consumers as higher prices (5) Growth inflation gets more severe as economy operates closer to its full capacity...
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Econ Notes 3.31 - productivity 7. Potential GDP on average...

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