Transcript AP Macro - Sect. 7 PP no bkgdx

Sect. 7 - Economic Growth & Productivity
Module 37 - Long Run Economic Growth
What you will learn:
• How we measure long-run economic growth
• How real GDP has changed over time
• How real GDP varies across countries
• The sources of long-run economic growth
• How productivity is driven by physical capital, human
capital, and technological progress
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Sect. 7 - Economic Growth & Productivity
Module 37 - Long Run Economic Growth
Real GDP Per Capita -
Real GDP divided by the nation’s population
- used to compare economies of different nations or a nations
economic growth over time
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Sect. 7 - Economic Growth & Productivity
Module 37 - Long Run Economic Growth
Real GDP Per Capita -
Real GDP divided by the nation’s population
- used to compare economies of different nations or a nations
economic growth over time
Rule of 70 Formula to determine time for real GDP per capita to double
Years to double =
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Annual growth rate
Ex: With 2% avg. annual growth rate it would take 35 yrs. for
real GDP per capita to double
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Sect. 7 - Economic Growth & Productivity
Module 37 - Long Run Economic Growth
Real GDP Per Capita -
Real GDP divided by the nation’s population
- used to compare economies of different nations or a nations
economic growth over time
Rule of 70 Formula to determine time for real GDP per capita to double
Years to double =
70
Annual growth rate
Ex: With 2% avg. annual growth rate it would take 35 yrs. for
real GDP per capita to double
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Labor Productivity Output per worker - increasing productivity is the most important
factor for economic growth
Growth in Productivity Physical Capital Tools, equipment, machinery, etc. that workers use
- U.S. workers use far more physical capital than most
other countries or U.S. workers of the past
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Labor Productivity Output per worker - increasing productivity is the most important
factor for economic growth
Growth in Productivity Physical Capital Tools, equipment, machinery, etc. that workers use
- U.S. workers use far more physical capital than most
other countries
Human Capital The knowledge and experience of the worker
- improves labor productivity
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Technology Most important factor in productivity growth
- worker can produce more even with same amount of capital
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Module 38 - Productivity & Growth
What you will learn:
• How changes in productivity are illustrated using an
aggregate production function
• How growth has varied among several important regions of
the world and why the convergence hypothesis applies to
economically advanced countries
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Module 38 - Productivity & Growth
Aggregate Production Function Function showing how productivity per worker depends on the
amount of capital (physical & human) per worker and the state of
technology
GDP per worker = T (technology) X (phys. cap. per worker)0.4
X (hum. Cap. per worker)0.6
Diminishing Returns to Physical Capital With no change in technology or human capital, each increase
in physical capital per worker leads to a smaller increase in
productivity
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Module 38 - Productivity & Growth
Aggregate Production Function Function showing how productivity per worker depends on the
amount of capital (physical & human) per worker and the state of
technology
GDP per worker = T (technology) X (phys. cap. per worker)0.4
X (hum. Cap. per worker)0.6
Diminishing Returns to Physical Capital With no change in technology or human capital, each increase
in physical capital per worker leads to a smaller increase in
productivity
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Growth Accounting Estimate the contribution of each growth factor in the
“aggregate production function”
Total Factor Productivity Amount of output that can be achieved with a given amount of
factor inputs
- with no increase in capital, technological advances would then be
necessary for economic growth
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Growth Accounting Estimate the contribution of each growth factor in the
“aggregate production function”
Total Factor Productivity Amount of output that can be achieved with a given amount of
factor inputs
- with no increase in capital, technological advances would then be
necessary for economic growth
Natural Resources Natural resources are also an important factor in determining
economic growth
- countries with abundant natural resources generally have a
higher GDP per capita
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Convergence Hypothesis The idea that international differences in real GDP per capita
narrow over time
- nations that start with lower GDP per capita tend to have higher
growth rates
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Convergence Hypothesis The idea that international differences in real GDP per capita
narrow over time
- nations that start with lower GDP per capita tend to have higher
growth rates
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Module 39 - Why Economic Growth Rates Differ
What you will learn:
• The factors that explain why long-run growth rates differ so
much among countries
• The challenges of growth posed by scarcity of natural
resources, environmental degradation, and efforts to make
growth sustainable
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Module 39 - Why Economic Growth Rates Differ
Capital, Technology & Growth Differences Economies experiencing rapid growth tend to be those that
increase physical, human capital, and technological progress
Government & Physical Capital Governments that invest in infrastructure provide the foundation
for economic growth
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Module 39 - Why Economic Growth Rates Differ
Capital, Technology & Growth Differences Economies experiencing rapid growth tend to be those that
increase physical, human capital, and technological progress
Government & Physical Capital Governments that invest in infrastructure provide the foundation
for economic growth
Government & Human Capital Government spending on education and provide funding for
college through grants and loans
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Government & TechnologyGovernment invests in research and development
Political Stability, Property Rights -
For long-run economic growth a country must have political
stability and protect the property rights of its’ citizens
- people will not invest in business if they fear a collapse of
the govt. or losing the rights to there investment
Economic Growth & The Environment Economic growth tends to increase human impact on the
environment
- must be a balance between un-regulated growth and concern for
the environment
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Government & TechnologyGovernment invests in research and development
Political Stability, Property Rights -
For long-run economic growth a country must have political
stability and protect the property rights of its’ citizens
- people will not invest in business if they fear a collapse of
the govt. or losing the rights to there investment
Economic Growth & The Environment Economic growth tends to increase human impact on the
environment
- must be a balance between un-regulated growth and concern for
the environment
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Module 40 - Economic Growth in Macroeconomics Models
What you will learn:
• How long-run economic growth is represented in
macroeconomic models
• How to model the effects of economic growth policies
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Module 40 - Economic Growth in Macroeconomics Models
Long-run Econ. Growth & Prod. Possibilities Curve A sustained rise in the quantity of goods and services an
economy produces
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Module 40 - Economic Growth in Macroeconomics Models
Long-run Econ. Growth & Prod. Possibilities Curve A sustained rise in the quantity of goods and services an
economy produces
Depreciation A loss in the value of physical capital due to wear, age, or
obsolescence - inward shift in PPC of consumer goods
Long-run Econ. Growth & Agg. Demand - Agg. Supply Model In the long-run, change in aggregate price level has no effect on
the Long-run aggregate supply - at the point of potential output
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Module 40 - Economic Growth in Macroeconomics Models
Long-run Econ. Growth & Prod. Possibilities Curve A sustained rise in the quantity of goods and services an
economy produces
Depreciation A loss in the value of physical capital due to wear, age, or
obsolescence - inward shift in PPC of consumer goods
Long-run Econ. Growth & Agg. Demand - Agg. Supply Model In the long-run, change in aggregate price level has no effect on
the Long-run aggregate supply - at the point of potential output
- Growth in potential output shifts LRAS curve to the right
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Module 40 - Economic Growth in Macroeconomics Models
Long-run Econ. Growth & Prod. Possibilities Curve A sustained rise in the quantity of goods and services an
economy produces
Depreciation A loss in the value of physical capital due to wear, age, or
obsolescence - inward shift in PPC of consumer goods
Long-run Econ. Growth & Agg. Demand - Agg. Supply Model In the long-run, change in aggregate price level has no effect on
the Long-run aggregate supply - at the point of potential output
- Growth in potential output shifts LRAS curve to the right
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Long-run Growth and Short-run Fluctuations Important to distinguish between short-run fluctuations due to
the business cycle and actual long-run economic growth
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Long-run Growth and Short-run Fluctuations Important to distinguish between short-run fluctuations due to
the business cycle and actual long-run economic growth
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The End
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