Macroeconomics 111 - Chapter 17

Macroeconomics 111 - Chapter 17 - -More and/or better...

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CHAPTER 17 – Economic Growth - Economic growth is an increase in real GDP - As more goods and services are produced, real GDP increases and people are able to consume more -Small changes in rate of growth produce big changes over periods of many years because the rate of growth is applied to a growing base every year. This is referred to as compound growth . RULE OF 72 – Easy Per Capita Real GDP -…is the real GDP divided by the population -One reason why GDP might be growing is because the population and workforce is growing -To measure whether there is more output per person, and hence a higher standard of living we need to look at the real GDP per person. Growth and Potential Real GDP -Economic growth raises the potential level of real GDP, shifting the long-run aggregate supply curve to the right -Equivalently, economic growth pushes the production possibilities curve outward Determinants of Growth - Size and quality of the labor force
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Unformatted text preview: -More and/or better workers can produce more-Capital-More and better equipment, tools, and factories allow producers to increase output, and better utilize labor-Land-Natural resources are not a necessary condition for economic growth because they may be acquired through trade-Technology-Technology: ways of combining resources to produce output. Technological advances allow the production of more out put from a given amount of resources. Productivity-Total Factor Productivity (TFP) is the ratio of the economy’s output to its stock of labor and capital-The greater the TRP, the greater the potential output from other resources Economic Growth = Growth of TFP + Growth of Resources Determinants of Productivity -Labor Quality-Education level, demographic change-Technological innovation-Other factors-Energy prices, manufacturing v service, financial market development...
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