Human physiology will continue to improve as technology increases. As people become taller, stronger, and less susceptible to disease, they become more productive. People also have become more intelligent over time; these increases may be a result of rising incomes that increase the health of children and allow them to stay in school longer. This learning will allow them to become more productive as adults, which will earn them higher incomes and have healthy children. Economists studying economic development for low income countries put stress on need to reduce disease and increase nutrition (important first steps toward economic growth). 3. Be able to explain how long run economic growth has dramatically changed life and how novel the last two centuries have been. (Ch. 10.1 and notes) Long-run economic growth brought the typical American from the standard living of 1900 to the standard living of today. The real GDP (base year 2009) per capita was about $6,000 in 1900 and grew to about $49,200 in 2012. An average American could buy more than 8x as many goods and services as an American 1900. Mostly all homes now have electricity, indoor flush toilets, running water, etc. 4. Be able to calculate growth rates and doubling times with the Rule of 70. (Ch. 10.1 and notes) Growth rates: Final - initial X 100 OR Initial Rule of 70: Number of years to double = 70 Growth Rate
5. Be able to explain why small differences in growth rates matter dramatically over long periods. (Ch. 11.1 and notes) Small differences in growth rates may seem rather trivial and irrelevant but in the long run can have drastic impact on the economy. For example, say we have an increase in GDP growth rate from 5 to 5.1%. In say 300 years, the size of the economy would have grown a whopping 25% which is an astounding approximation 600,000 times the current size. Inflation and interest rates ultimately change this over the long run (Compounding is key). 6. Be able to explain how real GDP per person is determined by the percent of the population that works and labor productivity (i.e. Y/pop = (L/pop)•(Y/L)) (notes) Y/pop is defined as real GDP per person. When multiplying L/pop by Y/L the L’s cancel out leaving just 1/population of a country times Y which is real GDP. Pop = population Y/Pop = Real GDP per person 7. Be able to explain how to use the "per-worker production function" graph and the corresponding equation. (Ch. 11.2 and notes) Y/L = A(K/L) ^.3 Y = Real GDP L = labor Y/L = Real GDP per worker (labor productivity) A = Total Factor Productivity (TFP) K/L = capital
8. Be able to explain the impact of the capital to labor ratio and technology on economic growth via the per-worker production function. (Ch. 10.1, 11.2, and notes) The impact of the capital to labor ratio, in other words, K/L has a correlation with technology on economic growth. In order to maintain economic growth, sustained technological innovation on K/L is necessary due to diminishing returns.
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- Fall '10