CH9 - Learning Objective 9.1 Long-run economic growth The...

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9/30/2009 1 Economic Growth, the Financial System, and Business Cycles 1 Learning Objective 9.1 Long-run economic growth The process by which rising productivity increases the average standard of living. FIGURE 9.1 The Growth in Real GDP per Capita, 1900–2006 Learning Objective 9.1 The Connection between Economic Prosperity and Health Making the Connection Learning Objective 9.1 The growth rate of real GDP (or real GDP per capita) during a particular year is equal to the percentage change from the previous year. % 100 1 1 , t t t t y y y g t For longer periods of time, we can use the average annual growth rate. ) ... ( 1 1 , n t t t n t t g g g n g 4 Learning Objective 9.1 One way to judge how rapidly a variable is growing is to see how quickly it will double in size. An approximation of the number of years to double is the Rule of 70. rate Growth 70 double to years of Number Note that growth rates compound over time, so that small changes in growth rates have large effects in the long run. What Determines the Rate of Long-Run Growth? Increases in real GDP per capita depends on increases in labor productivity Labor productivity The quantity of goods and services that can be produced by one worker or by Learning Objective 9.1 services that can be produced by one worker or by one hour of work. What causes increases in labor productivity? 6
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