Econ1102_Week12 - Week 12 Lectures 23 & 24 The Economy in...

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Week 12 Lectures 23 & 24 The Economy in the Long Run: Economic Growth Reference: Bernanke, Olekalns and Frank –Chapters 12, 13 & 14 Key Issues Real GDP per capita The production function – Cobb-Douglas Growth accounting Solow-Swan model
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2 Measuring Economic Growth Conventional to use real GDP per capita as a measure of a country’s living standards and stage of economic development Real GDP per capita: POP Y POP GDP y = = We know from Week 1, that GDP is not a perfect measure of economic wellbeing; however it does seem to be positively related to life expectancy, infant health etc.
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3 Quarterly Real GDP per Capita for Australia (1973-2009) - 10,000 20,000 30,000 40,000 50,000 60,000 Sep-73 Sep-75 Sep-77 Sep-79 Sep-81 Sep-83 Sep-85 Sep-87 Sep-89 Sep-91 Sep-93 Sep-95 Sep-97 Sep-99 Sep-01 Sep-03 Sep-05 Sep-07 $, annual rates
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4 Growth Facts There are large differences in the level of real GDP per capita across countries $US (1985 prices) US Japan China South Korea Chad 1990 18,073 14,317 1,324 6,665 400 An important cause of this inequality is the fact that countries grow at different rates. Average % per annum US Japan China South Korea Chad 60-90 1.4 5.0 2.4 6.0 -1.7
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5 Small Differences in Growth Rates Have Big Level Effects Why some countries can grow rapidly; while others lag far behind; is an important question. Small differences in growth rates, maintained over many years, can make large differences in living standards. Country Growth Initial Income after x years Rate Income 5 25 35 A 1% 1000 1051 1284 1419 B 2% 1000 1105 1649 2013
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6 Decomposing Changes in GDP per Capita We can re-write real GDP per capita in the following way: POP N N GDP POP GDP × = where N is employed workers. The right-hand-side is Average labour productivity (GDP/N) ( times ) Share of population in employment ( N/POP)
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7 Growth in Australian Real GDP per Capita Real GDP per capita can only grow if labour productivity grows, and/or the employment share grows From 1965 and 2006, real GDP per capita grew by 108%. share of population working grew from 66% to 74%; as women participated more fully in the workforce average labour productivity increased by 87%
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8 Influences on Labour Productivity Human Capital Physical Capital per worker Land and Natural Resources Technology Management Political and Legal Environment
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9 Costs and Limits to Economic Growth Can economic growth continue indefinitely without depleting natural resources and causing massive change to the global environment? Are there limits to growth? Growth in real GDP can be in the form of new or
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This note was uploaded on 09/08/2011 for the course ECON 908 taught by Professor Bullshit during the Spring '11 term at United Theological Seminary.

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Econ1102_Week12 - Week 12 Lectures 23 & 24 The Economy in...

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