LEC IV Economic Growth

LEC IV Economic Growth - 11/8/10 Prof Srivatsan Prof...

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Unformatted text preview: 11/8/10 Prof Srivatsan Prof Srivatsan 11 Macro Module – Lec IV Economic Growth 11/8/10 Prof Srivatsan Prof Srivatsan The Importance of Growth  Achieving higher growth rate in long-run  Some sacrifice in short-run  Average standard of living  Total output (real GDP) per person 2 11/8/10 Prof Srivatsan Prof Srivatsan The Importance of Growth  Output grows faster than the population  GDP per capita rises  Output grows more slowly than the population 33 11/8/10 Prof Srivatsan Prof Srivatsan What Makes Economies Grow ? 1. Labor productivity  Output produced by the average worker in an hour � Productivity = Output per hour Size of the population 44 worked hours Total output Total ty Productivi = 11/8/10 Prof Srivatsan Prof Srivatsan What Makes Economies Grow ? 3. Number of hours the average worker spends at the job 4. Fraction of the population that is working (employment- population ratio) 55 employment Total hours Total hours Average = Population employment Total EPR = 11/8/10 Prof Srivatsan Prof Srivatsan What Makes Economies Grow ?  Total output = Productivity × Average hours × EPR × Population  Growth equation  %ΔTotal output = %Δ Productivity + %Δ Average hours + %Δ EPR + %Δ Population 66 11/8/10 Prof Srivatsan Prof Srivatsan Economic Growth and Living Standards  Growth in output per person and living standards  Employment–population ratio increases  Productivity grows  %ΔTotal output per person = %Δ Productivity + %Δ Average hours + %ΔEPR 77 11/8/10 Prof Srivatsan Prof Srivatsan Growth in ERP  For a given population growth rate  The greater the growth of total employment  The greater the rise in the EPR  Or the smaller the drop in the EPR  Employment increases if  Labor supply increases  Labor demand increases  Or a combination of both 88 11/8/10 Prof Srivatsan Prof Srivatsan An Increase in Labor Supply 99 1 6 $ 2 L D 1 5 $ 1 $11 .5 1 8 1 5 A 1 8 B Real Hourl y Wage Million s of Worker s A B Real Output ($ Trillion s) Million S 2 L 11/8/10 Prof Srivatsan Prof Srivatsan An Increase in Labor Demand 10 L S $ 2 2 2 1 5 A 1 8 B Real Hourly Wage Millions of Workers D 1 L 11/8/10 Prof Srivatsan Prof Srivatsan The U.S. Labor Market Over A Century 11 L 1 L 2 W 1 W 2 A B D 2 L D 1 L S 1 L S 2 L Real Hourly Wage Millions of Workers 11/8/10 Prof Srivatsan Prof Srivatsan How To Increase Employment and the EPR  Increase the labor supply  Cut tax rates  Cut benefits to the needy  Results  Speed the rightward shifts of labor supply  Speed the growth in employment  Raise EPR 12 11/8/10...
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This note was uploaded on 11/07/2010 for the course ECON 0001 taught by Professor Kitsikopoulos during the Spring '08 term at NYU.

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LEC IV Economic Growth - 11/8/10 Prof Srivatsan Prof...

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