Centrally Planned Economy Government controls production of goodsservices

# Centrally planned economy government controls

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Centrally Planned Economy – Government controls production of goods/services Economic Growth is not inevitable. Economic growth is desirable, but has problems with environmental factors and opposition to globalization. China’s “standard of living” is most likely not going to surpass the U.S.’s o Part B: Rates of Economic Growth Economic Growth Model – A model that explains growth rates in real GDP per capita over the long run Predicts that poor countries will grow faster than rich countries Catch-up (convergence) – The prediction that GDP per capita will grow faster than in rich countries Paradox: Low-income countries have been catching up to high-income countries, but not as groups
For long periods of time, use average annual growth rates (for 2,182 billion to increase to 15,471 billion in 62 years, it grew at an average rate of 3.1% per year) For short period of time, calculate the average growth rate for each year Growth over 1 year X1 = (1 + g) x (X0) X2 = (1 + g) x (X1) or X2 = (1 + g) x [(1 + g) x (X0)] G: Average annual growth rate over 2 years Growth rate over n years Xn = [(1+G)^n] x (X0) Growth rate with unknown G g = [(Xn/X0)^(1/n)] – 1 Rule of 70 – An easy-to-use approximation for the approximate number of years something takes to double in size Years to double = 70/Growth Rate Industrial Revolution – The application of mechanical power to the production of goods, beginning in England around 1750 U.S. Growth Rates Real per capita GDP 1800: \$1,600 (equivalent to present day Haiti) 2013: \$52,800 China’s Growth Rate Real per Capita GDP 2013: \$9,800 Annual % change (2%) is different than total % change (242%) Different groups of economies: High-Income Countries – Industrial/developed countries (U.S., Canada, Australia, Japan, New Zealand, and Western Europe) Poor Countries – Developing countries (Africa, Asia, Latin America) Newly Industrialized Countries – Some countries started growing in the 80’s and 90’s (Singapore, South Korea, Taiwan) Small differences in growth rates are important Compounding – Magnifies even small differences in interest rates over long periods of time Key point: In the long run, small differences in economic growth rates result in big differences in living standards. o Part C: The Role of Capital and Technology in Growth Production Per Worker U.S.: \$45,090 China: \$17,600 Haiti: \$4,600 Real capita per person has risen as time goes on Technology – Something that increases production without an increase in capital or labor Types: Better capital, organized production, more human capital (training) Per-Worker Production Function: Micro Example: Panini shop with one worker Macro: Aggregate Production Function Inputs K (capital) L (labor)
Intermediate goods Entrepreneurship o Part D: Per-Worker Production Function Why we use the PWP Function We use per-worker because it corresponds to per capita income All workers and capital averaged together Key inputs: K and L Result: Labor productivity Labor productivity

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• Fall '10
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