Long-Run+Growth - Long-Run Growth A typical family with all...

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Unformatted text preview: Long-Run Growth A typical family with all their possessions in the U.K., an advanced economy GDP per capita: $35,580 Life expectancy: 79 years Adult literacy: 99% A typical family with all their possessions in Mexico, a middle income country GDP per capita: $11,410 Life expectancy: 76 years Adult literacy: 92% A typical family with all their possessions in Mali, a poor country GDP per capita: $1,130 Life expectancy: 50 years Adult literacy: 46% 5 GDP per capita, 2005 Growth rate, 1960-2005 China $6,572 5.8% Singapore 29,921 5.4% Japan 30,821 3.8% Spain 26,125 3.2% India 3,486 2.7% Israel 25,670 2.7% United States 41,854 2.2% Canada 32,886 2.1% Colombia 7,769 1.8% New Zealand 22,511 1.4% Philippines 4,920 1.4% Argentina 14,421 1.0% Saudi Arabia 14,729 0.8% Rwanda 1,333 0.3% Haiti 1,836 1.2% Incomes and Growth Around the World FACT 1: There are vast differences in living standards around the world. 6 GDP per capita, 2005 Growth rate, 1960-2005 China $6,572 5.8% Singapore 29,921 5.4% Japan 30,821 3.8% Spain 26,125 3.2% India 3,486 2.7% Israel 25,670 2.7% United States 41,854 2.2% Canada 32,886 2.1% Colombia 7,769 1.8% New Zealand 22,511 1.4% Philippines 4,920 1.4% Argentina 14,421 1.0% Saudi Arabia 14,729 0.8% Rwanda 1,333 0.3% Haiti 1,836 1.2% Incomes and Growth Around the World FACT 2: There is also great variation in growth rates across countries. 7 Incomes and Growth Around the World Since growth rates vary, the country rankings can change over time: Poor countries are not necessarily doomed to poverty forever e.g. , Singapore, incomes were low in 1960 and are quite high now. Rich countries cant take their status for granted: They may be overtaken by poorer but faster-growing countries. 8 Incomes and Growth Around the World Questions: Why are some countries richer than others? Why do some countries grow quickly while others seem stuck in a poverty trap? What policies may help raise growth rates and long-run living standards? 9 Productivity Recall one of the Ten Principles: A countrys standard of living depends on its ability to produce g&s (goods & services). This ability depends on productivity , the average quantity of g&s produced per unit of labor input. Y = real GDP = quantity of output produced L = quantity of labor so productivity = Y / L (output per worker) 10 Why Productivity Is So Important When a nations workers are very productive, real GDP is large and incomes are high. When productivity grows rapidly, so do living standards. What, then, determines productivity and its growth rate? 11 The Production Function The production function: output (Y) is dependent on (function of) technological Knowledge (A), Labor (L), Capital (K), Human Capital (H) and Natural Resources (N) Input Processing Output Y = A F ( L , K , H , N ) 12 Physical Capital Per Worker Recall: The stock of equipment and structures used to produce g&s is called...
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Long-Run+Growth - Long-Run Growth A typical family with all...

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