Econ+102+lecture+7%2C+1-26-12+-+Growth+basics copy

Econ+102+lecture+7%2C+1-26-12+-+Growth+basics copy -...

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Lecture 7: Ch. 9 – Growth and  the aggregate production function Econ 102, Winter 2012 1/26/2012 1 Required reading : Ch 9: pp. 225-238 (no reading for “growth mechanics” section)
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Outline 1. Long run growth: why study it? 2. The production function a. Its shape b. Its shifters 3. The mechanics of annual growth 1/26/2012 2
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Long-Run Economic Growth Many have argued that growth is the single most important topic in economics The most direct means of benefitting the most people to the greatest extent possible There are many economists who argue that the study of foreign assistance – how to help less- developed countries – should simply be the study of economic growth To understand the ways to encourage economic growth and increases in welfare, need a model of growth 1/26/2012 3
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Long-Run Economic Growth 4
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Long-Run Economic Growth 5
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Long-Run Economic Growth Growth works like compound interest: small increases add to previous small increases, and can lead to very large changes in the long run Growth rate: Rule of 70 : very roughly, given an economy’s growth rate, we can say that for per-cap rGDP, years to double in size = 100 x rGDP rGDP - rGDP 1 1 2 years rate growth annual 70 1/26/2012 6
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Long-Run Economic Growth per-cap rGDP doubles every E.g., consider a country that grows at a 2% rate Doubles in size every 70/2 = 35 years After 100 years, it has doubled 100/35 = 2.86 times 22.86 = 7.26 times bigger in year 2000 than in 1900 E.g., consider a country that grows at a 3% rate Doubles in size every 70/3 ≈ 23 years After 100 years, it has doubled 100/23 = 4.35 times years rate growth annual 70 1/26/2012 7
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The aggregate production function Growth can happen only as workers become more productive – as output for the average worker rises! What determines national productivity? The aggregate production function “Total real productivity is equal to the technology level T, times a function of capital stock K, labor stock L, the stock of human capital, HC” Just like the PPF!
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