CHP 7-10 MACRO - CHP 7- More capital improved workforce...

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CHP 7 - More capital improved workforce quality and better technology all raise labor productivity and therefore shift the production function upward. The growth rate of labor productivity depends on the rate of capital formation, the rate of improvement of workforce quality and the rate of technical progress so growth policy concentrates on speeding up these processes. Capital formation can be encouraged by low real interest rates favorable tax treatment rapid technical change rapid growth of demand and climate of political stability that respects property rights. Each of these factors is at least influenced by policy. Policies that increase education and training the 2 nd pillar of growth can be expected to make a countries workforce more productive. They range from universal primary education to postgraduate fellowships in science and engineering. Technological advances can be encouraged by more education by higher rates of investment and also by direct expenditures-both public and private. The convergence hypothesis holds that countries with lower productivity levels tend to have higher productivity growth rates so that poor countries gradually close the gap on rich ones. One major reason to expect convergence is that technological know how can be transferred quickly from the leading nations to the laggards. Unfortunately not all countries seem able to benefit from this information transfer. Productivity growth slowed precipitously in the United States around 1973 and no one still doesn’t know why. Productivity growth in the United States has speeded up again since 1995 largely as a result of the information technology revolution. Because many personal services such as education medical care and police protection are essentially handicraft activities that are not amenable to labor saying innovations they suffer from a cost disease that makes them grow ever more expensive over time. The same three pillars of economic growth capital technology and education apply in the developing countries. But on all three fronts conditions are much more difficult there and improvements are harder to obtain. The rich countries try to help with all three pillars by providing development assistance and multinational corporations sometimes provide capital and better technology via foreign direct investment but both of these mechanisms are surrounded by controversy. Growth in many of the poor countries is also held back by adverse geographical conditions and or corrupt governments. CHP 8 - Aggregated demand is the total volume of goods and services purchased by consumer’s businesses government units and foreigners. It can be expressed as the sum C + I + G +(X-M) where C is consumer spending I is investment spending G is government purchases and X-IM is net exports. Aggregated demand is a schedule the aggregate quantity demanded depends on the price level. But for any given
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This note was uploaded on 03/06/2010 for the course ECON Macro Econ taught by Professor Dewan during the Spring '10 term at Eastern Oregon.

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CHP 7-10 MACRO - CHP 7- More capital improved workforce...

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