Week 05, Day 2 - Chapter 08 Overheads (revised)

# Week 05, Day 2 - Chapter 08 Overheads (revised) - Chapter 8...

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Chapter 8 – Long-Run Economic Growth Long-Run Economic Growth Sources of Long-Run Growth Aggregate Production Function Growth Accounting Growth Policies and Institutions Lessons from Economic Growth Experience Convergence Hypothesis Long-run economic growth is measured by increases in real GDP per capita. Canada’s real GDP per capita grew on average by 2.2% per year between 1900 and 2000. Growth rates were particularly high during the 1950s and 1960s but have declined since. Despite seemingly low annual growth rates in real GDP per capita, over long periods of time, the changes in real GDP per capita can be significant (as a result of compounding). The Rule of 70 is a simple method of determining how many years it takes for a value to double. Number of years for a value to double = 70/average annual growth rate (as a %) At 2.2% annual growth, real GDP per capita doubles in approximately 32 years (70/2.2 = 31.8). Q: If a value doubles in 20 years, what is the average annual growth rate of the variable? A: Number of years for a value to double = 70/average annual growth rate (as a %) = 20 or Average annual growth rate (as a %) = 70/20 = 3.5% Sources of Long-Run Growth Real GDP per capita = output/population = workers/population × output/worker Economic growth is the result of productivity growth [ie more output per worker (Y/L) or more output per worker hour] and growth in employment rates (ie more workers relative to the population).

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While growth in employment rates has occurred--from the mid-1970s to the present, the proportion of the working age population that is employed increased from 56% to almost 64%, the potential for further significant growth is limited (particularly with the aging of the population). Therefore, our focus is on productivity growth. The three sources of productivity growth are
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Week 05, Day 2 - Chapter 08 Overheads (revised) - Chapter 8...

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