9/30/20091Economic Growth, theFinancial System, andBusiness Cycles1Learning Objective 9.1Long-run economic growth The process by which rising productivity increases the average standard of living.FIGURE 9.1The Growth in Real GDPper Capita, 1900–2006Learning Objective 9.1The Connection between Economic Prosperity and HealthMakingtheConnectionLearning Objective 9.1The growth rate of real GDP (or real GDP per capita) during a particular year is equal to the percentage change from the previous year.%10011,ttttyyygtFor longer periods of time, we can use the average annual growth rate.)...(11,ntttnttgggng4Learning Objective 9.1One way to judge how rapidly a variable is growing is to see howquickly it will double in size. An approximation of the number of years to double is the Rule of 70.rateGrowth 70doubletoyearsofNumber 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 productivityLabor productivity The quantity of goods and services that can be produced by one worker or byLearning Objective 9.1services that can be produced by one worker or by one hour of work.What causes increases in labor productivity?6
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