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Economic Growth Rate
- annual percentage change in gdp
- = real gdp current - real gdp pervious divide real gdp previous
- how rapidly is total economy expanding
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Real GDP per Person
- standard of living
- real gdp divide population
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Rule of 70
number of years it takes for any variable to double is about 70 divide annual percent growth rate
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Aggregate Production Function
- think ppf b/w real gdp and qty of leisure time
- tells us how GDP changes as qty of labour changes, everything else in production remaining the same
- increase in labour brings increase gdp
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Demand for Labour
relationship b/w qty labour demanded and real wage rate
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Qty of Labour Demanded
hours of labour demanded by all firms in a given period
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Real Wage Rate
- money wage rate divided by price level
- qty of g/s an hour of labour earns
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Supply of Labour
- Relationship b/w qty labour supplied and real wage rate
- households care about how much wage gets them
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Potential GDP (labour mkt)
- real gdp increases as labour increases
- at (E) mkt is at full employment
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What makes potential GDP grow?
- Growth of supply of labour - SHIFTS supply curve rightward. No increase in demand, so, real wage rate decreases and potential GDP rises
- Growth of Labour productivity - ppf expands upward b/c workers more capable. firms pay more, increase demand
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Labour Productivity
- qty real gdp produced in an hour of labour
- if labour more productive, firms will pay more so demand will increase
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Growth of supply of labour
SHIFTS supply curve rightward. No increase in demand, so, real wage rate decreases and potential GDP rises
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Conditions for Labour Productivity Growth
- Physical cap growth
- human cap growth
- tech advances
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Physical Capital Growth
- amount of capital per person increases, labour productivity increases
- ex. play factory vs china
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Human Capital Growth
- accum skill and knowledge
- growths w/ new discovery and when people learn from past
- ex. writing
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Technological Advances
labour many times more productive today than before b/c of tech
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Classical Growth Theory
- growth of gdp per person is temporary and when rises, population explosion brings it back to normal
- also called mathusian theory
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Neoclassical Growth Theory
- real gdp per person grows b/c tech change induces saving and investment that make capital per hour grow
- growth ends if tech advances end
- problem is assumes everyone has access to same tech
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New Growth Theory
- real GDP per person grows b/c of choices people make in the pursuit of profit and this will continue indefinitely
- states new discoveries and tech advances are not chance, depends on how many people are looking
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Policies for Faster growth
- stimulate saving - rrsp's savings increase economic growth
- stimulate r and d - everyone can enjoy benefits
- improve education - high standards of basic skills can contribute
- provide international aid - if rich give to poor, both will benefit
- international trade - stimulates econ growth
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