Chapter 9 Flashcards
Real GDP per capita and it is a measurement of a countries_____ _____ over time and ____ of living
output per person, real GDP/population size, measurement of countries economic growth over time and standard of living
why do we focus on Real GDP per capita for long term economic growth
isolate effect of changes in population ex population increase, cost of living decrease
What did WW2 allow in terms of growth
economic boosts, increase spending, increase production output
Growth Rates
long term process, real GDP per capita grows a few percent per year
rule of 70
of years for real GDP per capita or any variable to double
rule of 70 equation
of years for variable to double= 70/ annual growth rate of variable, (only applied to positive growth rate)
ex: how many years did it take canadian economy to double 3 times with an annual growth rate of 2%
70/2=35 years to double once
35x3=105
How much did GDP per capita increase during this time
by a factor of 8 2x2x2=8
large sustainable increase in GDP per capita is due to
labour productivity
the determinants of economic growth (3)
rising productivity, high savings, investment spendings,
sustained economic growth
amount of output produced by average worker increases steadily
labour productivity and equation
output per worker or hour, GDP/ #of people working
factors of long term growth 3
human and physical capital, technology
aggregate production function
Y=AxF(K,L,H)
per worker production function
Y/L=AxF(K/L,H/L)
what do variables in production equation stand for
Y=GDP A=Technology F=aggregate production function K=Physical Capital L=Labour H=Human Capital
how does aggregate real output for economy increase
when either of the factors improves
MPk positive productivity of physical capital
productivity is increased from small increase in physical capital
What happens if we hold total factor productivity constant or technology constant
production would show how technology is increasing production, vise-versa
growth accounting
estimate contribution of each factor in aggregate production function to growth
total factor productivity
amount of output that can be produced with given amount of factor inputs
Diminishing returns to physical capital (theory works for all inputs)
holding all else constant, each successive increase in KL leads to a diminishing smaller increase in productivity
How can diminishing returns disappear
other factor inputs increase ex human capital, technology, or both
Natural Resources
in the past were a large role, modern world is now switched human, physical and technology
Is long term economic growth possible with finite resources
yes, our factor inputs are vital to finding new ways to sustain our economic growth, ex finding alternatives to natural resources
Do we need lots of resources to have increase in factor outputs
no
Why do growth rates differ amongst countries (3)
depends on a countries
- private savings and investment spendings (K/L)
- Education investments (H/L)
- Research and development funding (A)
Role of Government in Growth (4)
creating environment that promotes economic growth
- Subsidies to infrastructure, education and R&D
- Maintaining a well-functioning financial system
- Protection of Property Rights
- Political Stability and Good Governance
- subsidies to infrastructure, education and R&D
which is which for H/L, K/L, A ????
infrastructure-physical capital
education- human capital
R&D- technology
- maintaining a well functioning regulated financial system
principle in which savings are channeled into investment spendings
- protection of property rights
patents, owners rights of valuables
- Political Stable and Good Governance
Laws, Institution to enforce laws
Convergence Hypothesis
Low GDP per capita countries will catch up with higher GDP per capita countries
Left Behind Growth (3)
- not all individuals and groups benefit from growth
- real GDP tends to translate to real median income
- growth goes to rich so median and poorer growth decline
