MacroEcon Chapter 9

# MacroEcon Chapter 9 - Chapter 9 Economic Growth and Rising...

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Chapter 9: Economic Growth and Rising Living Standards I. Meaning and Importance of Economic Growth Economic growth: rise in living standards A. Measuring Living Standards standard of living- real GDP/ population measure may seem limiting- doesn’t measure leisure time, clean environment GDP per capita is one aggregate (doesn’t account for distribution of goods) Country- 150k, almost all production is distributed to a few Living standards much lower GDP per capita- imperfect measure of living standards High real GDP per capita= higher quality of life for most people High quality of wealthy countries goes beyond GDP per capita Health care, eliminate extreme poverty Poorest country- all production goes to food (economic growth= only hope) Growth is a high priority: we always want more Growing economy- accomplish important social goals Real GDP per capita stagnates material gains become a fight More purchasing power my neighbor has, less left for me B. Small difference and rule of 70 Real GDP per capita rises by few % year to year

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Improvements hardly noticeable But look back 100 years ago 7x consume and produce The rule of 70 tells us that if a variable is growing by X percent per year, it will double in approximately 70/x years. ex: GDP grows every year by 2% (70/2= 35years-> living standards would double in 35 years) but if it grows by 3% then (70/3= 23 years), so living standards would double 12 years sooner C. Growth Prospects Figure 1- look over Most successful countries are growing at steadily Poorest countries: not growing much or getting poorer South Korea and Singapore: were in bottom. 1970’s grew rapidly and surpassed Mexico Their standard of living is 2x high Figure 1 is deception for the poorest countries Scale of vertical axis (has to go from few hundred dollar to \$40k) If not, it causes growth paths to be scrunched up Left out several poor countries that shot away and grew rapidly Figure 2 addresses the problem Adds in China, India and Vietnam (began to break away in 1980) China was the poorest until 1980 2004: grew by 10x Niger, Sierra Leone and Congo- deteriorate Ghana and Uganda: grow steadily (grow 5% per yr)
Rule of 70: they’ll double every 14 years II. What Makes Economics Grow? Real GDP must grow faster than population (numerator>denominator) A. Determinants of Real GDP Real GDP is determined by 4 factors With a given population, greater total employment means an increase in the EPR and a rise in real GDP per capita. An increase in any of them will cause real GDP to rise I) Productivity labor productivity (productivity): output produced by an average worker in an hr productivity: output per hour= total output/total hours worked total # of hours everyone worked during the period ex: all workers in US 300 billion hrs at a job, 12 trillion produced 12/30= \$40 per hour increase in productivity- one of the main contributors to economic growth II) Average Hours- hours workers spends on a job average hours= total hours/ total employment

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MacroEcon Chapter 9 - Chapter 9 Economic Growth and Rising...

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