Chapter_9_-_moodle

Chapter_9_-_moodle - Chapter 9 Economic Growth and Business...

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Chapter 9: Economic Growth and Business Cycles A. Long Run Economic growth a. Intro and what is economic growth i. Economic growth refers to improvement in productivity and in standard of living. ii. We measure economic growth with real GDP per capita. iii. Real GDP per capita = Real GDP / Number of people b. Calculating growth rates i. Growth Rate of GDP = (GDP t+1 GDP t ) / (GDP t ) ii. Example: US Real GDP in 2000 = 45,000 US Real GDP in 1910 = 44,000 Growth rate in the last 1 year = (45,000 44,000) / 44,000 = 2.27% iii. Average growth rate = Average of the growth rates iv. Rule of 70: Approximate number of years to double = 70 / growth rate v. Example: Growth rate = 2% it takes about 35 years for the GDP to be doubled. c. Determinants of long run economic growth i. Major determinant: Labor productivity ii. Labor productivity: amount of goods and services that can be produced by one unit of labor. 1. Capital per worker The more equipment and knowledge each worker has, the more productive he will be.
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a. Physical capital is the equipment necessary to do production b. Human capital is the knowledge and skills acquired through education and training. 2. Technological advances better technology, greater productivity. a. Technology refers to the process firms use to turn inputs to output. b. We observe Technological advance if firms can produce more with the same amount of inputs.
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