eco growth - Click to edit Master subtitle style Dr. Fidel...

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Unformatted text preview: Click to edit Master subtitle style Dr. Fidel Gonzalez Department of Economics and Intl. Business Sam Houston State University Lecture 6: Long-run Economic Growth PRINCIPLES OF MACROECONOMICS In the previous slides, we studied how to measure economic growth. Economic growth is measured by Real GDP per person. In particular by the average annual increase in the real GDP per person of a country for a given period of time. In this slides we will study the determinants of the growth in the real GDP per person in the long-run. Long-run growth is what determines the living standard around the world. There are huge differences in living standard around the world. In this section, we want to study why there are these huge differences and what affects the growth of the economy. This is a picture of a child in Chad that shows the huge level of poverty that is observed in many countries of the world. This is a picture of someone in the developed world where people have high living standards. It is very impressive the contrast in living standard between some countries. The next set of slides also reinforce the idea that living standards differ between countries. It shows the amount spent on food and the type of food purchased by an average family in different countries. The families in more developed economies tend to spend more on food and the food is usually processed. FOOD EXPENDITURE: $155 USD CHINA FOOD EXPENDITURE: $260 USD ITALY FOOD EXPENDITURE: $341 USD USA: NORTH CAROLINA FOOD EXPENDITURE: $190 USD MEXICO FOOD EXPENDITURE: $151 USD POLAND FOOD EXPENDITURE: $68 USD EGYPT FOOD EXPENDITURE: $159 USD USA: CALIFORNIA FOOD EXPENDITURE: $1.23 USD CHAD FOOD EXPENDITURE: $31 USD ECUADOR GREAT BRITAIN FOOD EXPENDITURE: $253 USD GERMANY FOOD EXPENDITURE: $500 USD Now, that we know that there are huge differences in standard of living among countries, we want to go specifically to the study of economic growth that determines this standard of living. In the long-run the most important determinant of growth is labor productivity. Labor productivity is the amount of goods and services produced per worker or by one hour of work. In words of Paul Krugman: Productivity isnt everything but in the long-run is almost everything. A countrys ability to improve its standard of living over time depends almost entirely in its ability to raise its output per worker Remember that Y= production and L=amount of labor Hence, productivity will be measure as: production per worker = labor productivity Y L = Productivity is the only long-run way to increase living standards Q: Why is productivity important? A: Productivity is important because it is essential for growth. The living standard of a country is measured by both the Real GDP per person and consumption....
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eco growth - Click to edit Master subtitle style Dr. Fidel...

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