CH 9 Flashcards
ace dat fuqin midterm...
Economic Growth
How is it measured?
What must grow faster than what?
Two Ways to increase?
Measured by Standard of Living (Real GDP per Capita)
Output must grow faster than population
Increase in EPR or a Productivity Growth
4 Factors of Economic Growth
1- Productivity: The amount of output the average worker can produce in an hour
2- The number of hours the average worker spends at the job.
3- The fraction of the population that is working (EPR)
4- The size of the population
Productivity
Total Output/Total Hours Worked
Average Hours Worked
Total Hours Worked/ Total Employment
EPR
Total Employment/ Population
Growth Equation
Real GDP/Population= GDP Per Capita
GDP Per Capita= Productivity x Average Hours x EPR
This also applies to %Change in all of the factors
Growth in EPR
Total employment needs to increase faster than total population. Increases by %change
Increase in Labor Supply or Labor Demand
Or Combination of Both
EPR Growth:
Increase Labor Supply
Government can create policy to increase employment by:
Tax Cuts increase the rewards for working.
Benefit cuts increase the hardship for not working
EPR Growth:
Increase in Labor Demand
Government can create policy to increase employment by:
Increase the skill of the workforce (training and student loans)
Subsidize employment– Give business money to hire workers
Growth in Productivity
Increase in Productivity can be caused by an increase in:
Capital Stock
Investment Spending
Human Capital
Technological Change
Government can create policy to foster any of these
How does the government target business to Increase Investment Spending?
Reducing business taxes or providing investment incentives (rightward shift in curve)
How does the government target households to increase investment spending?
Alter tax and transfer systems to increase the incentive for households to save..
Government Deficit Reduction: Notes
Government deficit reduction is one way to increase productivity, there are two ways to reduce:
Increase in taxes or cuts in budget
Both things can be done so as to offset the growth if not done right.
