Macro Chap 22

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  1. Economic Growth Rate
    • annual percentage change in gdp
    • = real gdp current - real gdp pervious divide real gdp previous
    • how rapidly is total economy expanding
  2. Real GDP per Person
    • standard of living
    • real gdp divide population
  3. Rule of 70
    number of years it takes for any variable to double is about 70 divide annual percent growth rate
  4. 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
  5. Demand for Labour
    relationship b/w qty labour demanded and real wage rate
  6. Qty of Labour Demanded
    hours of labour demanded by all firms in a given period
  7. Real Wage Rate
    • money wage rate divided by price level
    • qty of g/s an hour of labour earns
  8. Supply of Labour
    • Relationship b/w qty labour supplied and real wage rate
    • households care about how much wage gets them
  9. Potential GDP (labour mkt)
    • real gdp increases as labour increases
    • at (E) mkt is at full employment
  10. 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
  11. Labour Productivity
    • qty real gdp produced in an hour of labour
    • if labour more productive, firms will pay more so demand will increase
  12. Growth of supply of labour
    SHIFTS supply curve rightward. No increase in demand, so, real wage rate decreases and potential GDP rises
  13. Conditions for Labour Productivity Growth
    • Physical cap growth
    • human cap growth
    • tech advances
  14. Physical Capital Growth
    • amount of capital per person increases, labour productivity increases
    • ex. play factory vs china
  15. Human Capital Growth
    • accum skill and knowledge
    • growths w/ new discovery and when people learn from past
    • ex. writing
  16. Technological Advances
    labour many times more productive today than before b/c of tech
  17. Classical Growth Theory
    • growth of gdp per person is temporary and when rises, population explosion brings it back to normal
    • also called mathusian theory
  18. 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
  19. 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
  20. 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
Card Set
Macro Chap 22
Macro test 2 chap 22
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