Econ Macro Chapter 13
GDP per capita Economic growth as measured by the Real GDP growth rate
GDP is calculated as the sum of consumer spending, business spending, government spending and the total of exports minus imports. In order to factor in inflation and arrive at the real GDP figure, the calculation is as follows: Real GDP = GDP / (1 + Inflation since base year) The base year is a designated year, updated periodically by the government, that is used as a comparison point for economic data such as the GDP. Once real GDP is calculated, then the real GDP growth rate is calculated as follows: Real GDP growth rate = (most recent year's real GDP - the previous year's real GDP) / the previous year's real GDP Per capita GDP is a measure of the total output of a country that takes gross domestic product (GDP) and divides it by the number of people in the country. This is helpful when comparing one country to another.
Sources of LR growth:
Labor productivity: Output/Worker 2. Physical Capital( the resources we have in the U.S. are not in places like Chad... so the resources you have can limit your growth) 3. Human capital 4. Technological progress
Rule of 70
Rule of 70: doubling time: 70/ average/annual growth rate = # of years to double U.S.: 70/1.67 = 42 years to double China: 70/6 = 12 years to double
Through our country project we saw what works well to promote economic growth... and what countries are doing better...
The presence of a court system which enforces the rules is part of this legal framework. Protect Environment. Pollution, for example - negative externality. Costs of a market activity Bourne by a third party Protect consumer: unfair pricing, safety... control monopolies Protect Labor: Child labor laws do not allow an economy to pay a 13 year old to work at a hotel. Minimum wage -Find Optimal Mix to deliver trust + respect = stability Potential for economic growth Successfully: high-income nations, China, India, East Asia(S. Korea, Singapore) High savings + Physical + Human capital + New tech Struggling: most Latin America(except: chile, Eastern Europe...stagnate growth - too much government intervention. Failing: Sub-Saharan Africa Politically unstable because there are not a lot of rules.
Factors that contribute to different growth rates worldwide
Why do growth rater differ worldwide? 1. Savings fuels economic investment! 2. Foreign direct financial investment - boost low savings to fuel economic investment 3. Education: Spending level directly impacts human capital, productivity, tech productivity. 4. Infrastructure + Public Goods - provided by government... allow for case in conducting transactions 5. R + D: private firms and/or government subsidized. 6. Effective Government: stability + limited or effective interventions.
Convergence hypothesis
gap in real GDP is narrowing over time