LECTURE8 (2009) - ECON 1002 Introductory Macroeconomics...

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1 1 Introductory Macroeconomics Week 9 Economic Growth ECON 1002
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2 Macroeconomic Building Blocks The goals of macro-policy makers A sustainable faster rate of eco growth over the long term: ie increase the productive capacities of the country Stabilization: minimizing the fluctuations in eco growth away from the trend: Need to control shifts in AS and AD Correcting and controlling for the impacts of those fluctuations -unemployment -inflation -CA deficit How to increase the rate of growth in the productive capacities of a country: Introducing the concept of labour productivity and the role of investment
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3 Economic growth, labour productivity and investment Labour productivity (and therefore investment) is the key to economic development.
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4 Economic growth and investment 1. Introducing the importance of investment Economic growth = permanent increase in a country’s ability to produce goods and services = its productive capacity Potential growth versus actual growth The role of investment
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5 Economic growth and investment 2. Refining the importance of investment: the role of labour productivity in economic development The Cobb Douglas production function The per worker production function The production function and investment Total factor productivity A closer look at labour productivity and its determinants (highlightling the problems of diminishing returns to capital) Implications for developing countries (highlighting the importance of an adequate financial system) A closer look at the Asian miracle
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6 Economic growth and business cycles Remember: Actual GDP fluctuates around its trend (the business cycles). The trend path of GDP is the path GDP would take if ALL factors of production were fully and efficiently employed Economic troughs and peaks (output gaps) appear when growth is below or above trend The trend growth rate is not constant. It varies with changes in total factor productivity and the supply of factors of production
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7 Miscellaneous GNP per capita Luxembourg 38,247 USA 30,600 Singapore 27,024 Japan 24,041 Australia 22,448 UK 20,883 Malaysia 7,963 Thailand 5,599 Philippines 3,815 China 3,291 India 2,149 Ethiopia 599 In PPP dollars Sources: Crompton et al (1992) Gross National Product: The market value pf all goods and services produced by a country’s residents regardless of the location of resources
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8 Growth and labour productivity Economic growth is driven by increases in labour productivity (i.e. the quantity of goods and services workers can produce) Labour productivity depends on the stock of natural resources (land and raw material) capital technology The faster capital is accumulated, the faster the economy may grow. There are limits, however. The key to long-term growth is technological progress
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9 The production function Y t = A t f(L t , K t , N t ) with Y: output (real GDP) L: Labour force K: capital stock N: natural resources A : Total factor productivity. A variable measuring
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This note was uploaded on 04/14/2010 for the course ECON 1002 taught by Professor Markmelatos during the Three '10 term at University of Sydney.

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LECTURE8 (2009) - ECON 1002 Introductory Macroeconomics...

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