Module 7 Economic Growth, Productivity, and Living Standards

If you invest $100 in a savings account with an interest rate of 3 percent, compounded annually what is the equation that describes how much money you'll have in your account after 15 years?

$100 x (1.04)^15

If GDP per capita is 20,000 and the economy is growing at an annual rate of 4%, then what will GDP per capita be after 40 years?

$20,000 * (1.04)^40 = $96,020

Policies to increase human capital include:

1. government funding of job training programs 2. the provision of public education.

What does the quantity of goods and services that each person can consume depend on?

1. how much each worker can produce 2. how many people (as a fraction of the total population) are working. Furthermore, real GDP per person can grow only to the extent that there is growth in worker productivity and/or the fraction of the population that is employed.

What are some key factors that determine average labor productivity in a country?

1. human capital: skills and training of workers 2. physical capital: quantity and quality of machines, equipment, and buildings 3. natural resources: land and other natural resources 4. technologies: production advances 5. social and legal environment

Which of the following affect worker productivity?

1.The amount of physical capital available to the worker. 2. A worker's human capital.

What is the formula for approximating the number of years it will take for an initial amount to double at various growth or interest rates?

72/growth or interest rate. Ex: interest rate = 2% 72/2 = 36 years for the initial sum to double.

Economic growth can arise from the development of higher-quality products

Consumers place more value on high-quality products than on low-quality products, the development of higher-quality products can lead GDP to increase.

Economic growth generally requires a reduction in

Consumption. Consumers will need to sacrifice current consumption in order to free up resources for accumulation and research and development.

How do you calculate compound interest?

EX: $10 deposited at 4% interest. Interest is compounded annually. 1 year: $10 * 1.04 = 10.40 2nd year: $10 * (1.04)^2 = 10.82 so on....

How is Real GDP per person calculated?

Real GDP/person = Average labor productivity * Share of population employed

What are the limits of economic growth?

Some say the Earth has finite resources, which puts a limit on GDP. Yet, GDP can grow from better, rather than more, services and goods. Furthermore, GDP growth on a global scale will effect the environment, unless internationally recognized and addressed.

structural macroeconomic policies

These are policies that affect the legal and political framework.

What is a useful way to express real GDP?

This can be the product of two terms: average labor productivity and the share of the population that is working.

physical capital

This is analogous to human capital. This is acquired primarily though the investment of time, energy, and money. For example, one would need a certificate to further their education. The class requires tuition paid and the opportunity cost of ones time.

How do you calculate average labor productivity? (remember this leads to real GDP per person eventually..)

Y/POP = Y/N * N/POP N = the number of employed workers POP = total population You can see N cancels on the right side of the equation.

human capital

an amalgam of factors such as education, training, experiece, intelligence, energy, work habits, trustworthiness, and initiative that affects the values of a worker's marginal product.

__ is output per employed worker

average labor productivity

physical capitalk

equipment and tools (such as machines and factories) needed to complete one's work

T or F : In the future, the share of the population employed is likely to

fall

diminishing returns to capital

if the amount of labor and other inputs employed is held constant, then the greater the amount of capital already in use, the less an additional unit of capital adds to production.

average labor productivity

output per employed worker

When knowledge has widespread benefits that cannot be captured by a single private firm:

private firms will not have adequate incentives to invest in research and development 2. government may need to support research

Policies to increase human capital includeddd

provisions in public education government funding of job training programs

If GDP per capita grows at an annual rate of 9%, then 72/9 (or 8) tells you approximately

the number of years it will take GDP per capita to double

compound interest

the payment of interest not only on the original deposit, but on all previously accumulated interest

infrastructure

the public capital that supports private-sector economic activities

If GDP per capital grows at an annual rate of 9%, then 72/9 (or 8) tells you approximately

the years it will take GDP per capita to double

T or F, Real GDP per person measures the quantity of goods and services available to the typical resident of a country at a particular time.

true

Economic growth tends to be higher when property rights are

well-defined