Lecture Slides -Chapter 9.pptx - 9 LONG-RUN ECONOMIC GROWTH WHAT YOU WILL LEARN IN THIS CHAPTER \u2022 Why is long-run economic growth measured as the

Lecture Slides -Chapter 9.pptx - 9 LONG-RUN ECONOMIC GROWTH...

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9 LONG-RUN ECONOMIC GROWTH
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WHAT YOU WILL LEARN IN THIS CHAPTER Why is long-run economic growth measured as the increase in real GDP per capita? How has real GDP per capita changed over time in different countries? Why is productivity the key to long-run economic growth? How is productivity driven by physical capital, human capital, and technological progress? Why do long-run growth rates differ so much among countries? How does growth vary among several important regions of the world? Why does the convergence hypothesis apply to economically advanced countries? How does scarcity of natural resources and environmental degradation pose a challenge to sustainable long-run economic growth?
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GROWTH HAS BENEFITS AND COSTS Chinese growth (and air pollution) have risen dramatically.
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COMPARING ECONOMIES ACROSS TIME AND SPACE
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CANADIAN REAL GDP PER CAPITA The Canadian economy produces almost 133% as much per person as in 1900. TABLE 9-1 Canadian Real GDP per Capita Year Percentage of 1900 real GDP per capita Percentage of 2015 real GDP per capita 1900 100% 11% 1920 133 15 1940 184 20 1980 555 61 2000 772 85 2015 905 100 Data from: Angus Maddison, Statistics on World Population, GDP, and Per Capita GDP, 1–2008AD, “The First Update of the Madison Project: Reestimating Growth Before 1820” ; The World Bank.
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INCOMES AROUND THE WORLD, 2015 Large parts of the world have very low incomes. Generally speaking, the countries of Europe and North America, as well as a few in the Pacific, have high incomes. Many Asian countries, including China and India, have experienced rapid economic growth, moving them into the middle income groups. Africa, however, is dominated by countries with GDP less than US$5,000 per capita.
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THE RULE OF 70: THE MAGIC OF COMPOUNDING Even small differences in growth rates get magnified over time. The rule of 70: Example: If real GDP per capita is growing at an annual growth rate of 3.5%, it will double in: 70/3.5 = 20 years The moral? Small improvements in growth add up fast (the power of compounding). X of rate growth Annual 70 X for time Doubling
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Check Your Understanding Suppose that real GDP per capita grows at 2% per year. How many years will it take for real GDP per capita to approximately double? It will take: a) 70 years because of the rule of 70. b) 140 years, because the rule of 70 states that a variable will double in 70 years if the variable has an annual growth rate of 1%; therefore, a variable growing at 2% will take twice as long to double. c) 35 years, because 70/2 = 35. d) 50 years, since at 2% per year it takes 50 years to reach 100% more than the initial real GDP per capita.
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THE SOURCES OF LONG-RUN GROWTH Sustained economic growth occurs mainly due to increases in worker/ labor productivity. Productivity or Labor productivity (often referred to simply as productivity): It is defined as output per worker or output per man hour Man Hour: The number of hours worked by an average worker Growth in Productivity is influenced by Quantity of Physical Capital Human capital Technological Progress
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EXPLAINING GROWTH IN PRODUCTIVITY: PART 1
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