L5 Economic Growth & L6 pGDP

Question 1

Why rGDP increase?

Answer 1

Draw Production possibility frontier graph, labels! Capital goods vs. consumption
Business cycle(expansion) vs
Economic Growth potl GDP increase

Question 2

Sustained growth formulas

Answer 2

g= growth rate/100

Compound Interest
GDP yr x = GDP today(1+g)^x

Rule of 70 (proof?)
GDP doubles = 70/g

Natural log properties:
Ln(1+x) ~ x for small values of x

Question 3

Plotting GR

Answer 3

Natural log better shows growth trends; slopes tell how fast or slow (rate) growth of realGDPpp is.

Question 4

Potential GDP

Answer 4

The quantity of realGDP when the quantity of labour is the full employment quantity.

Question 5

Measure? pGDP

Answer 5

Draw graphs

1. Aggregate prod func
   Labour^ = rGDP^ but diminishing returns
2. Aggregate labour market
   Labour supply / demand vs RWR
   RWR= money wage rate/PL
   Meet- labour equilibrium

Question 6

Why increase? PGDP

Answer 6

1. Labour supply increase
LS> LMEv RWRv hrs^ pGDP^
Increase:
- aggregate labour hrs: total hrs worked by labour, dec due to shorter work week
-working popn: incr as popn inc
-employment: inc more women in workforce

2. Labour productivity increase
rGDP^ curve shift higher hrs^
Suppliers willing to pay higher RWR
LD>
Preconditions for incentives, rewards for innovation and productivity
-secure property right
-market based econ sys
Increase in:
-Human capital ,edu train work experience
-physical capital ,industrialization
-tech advances

Question 7

Economic growth

Answer 7

Sustained expansion of production possibilities

Measured as the increase of rGDP over a given period

Question 8

Measure?Growth Rates

Answer 8

Growth rates
(rGDPcur-rGDPprev)/rGDPprev x 100

Alternative:
Ln rGDPpp current - Ln rGDPpp prev x 100

SOL
same (pp)
or GR-popn change
Hence SOL inc only when GR>popn increase

Question 9

Why sudy EG?

Answer 9

Reasons or factors
Design policy
Maintain growth rate, so sustainable