Economic Growth

Real GDP Growth Rate

(Real GDP in current year - Real GDP in previous year) / Real GDP in previous year X 100

Real GDP per person growth rate

(Real GDP per person current year - Real GDP per person previous year) / Real GDP per person current year X 100

Aggregate Labor Market

the one labor market that determines the quantity of labor employed and the quantity of real GDP produced. Containing: demand for labor, the supply of labor, and labor market equilibrium.

Labor market Equilibrium

The price of labor is the real wage rate. If there is a shortage of labor, the real wage rate rises to eliminate it, and if there is a surplus of labor, the real wage rate eventually falls to eliminate it. When there is neither a shortage or surplus the labor market is in full employment

New growth theory

holds that real GDP per person grows because of the choices people make in the pursuit of profit and that growth will persist indefinitely.

Economic Growth

is the expansion of production possibilities.

Potential GDP

is the level of real GDP when the quantity of labor employed is the full employment quantity

The real wage rate

is the money wage rate divided by the price. The quantity of goods and services that an hour of labor earns. Influences the quantity of labor demanded because what matters to firms is not the number of dollars they pay but how much output they must sell to earn those dollars. The quantity of labor demanded increases as the real wage rate decreases

Neoclassical Growth Theory

is the proposition that rea GDP per person grows because technological change induces saving and investment that make capital per hour of labor grow.

The demand for Labor

is the relationship between the quantity of labor demanded and the real wage rate. The quantity of labor demanded is the number of labor hours hired by all the firms in the economy during a given period.

The supply of labor

is the relationship between the quantity of labor supplied and the real wage rate. The quantity of labor supplied is the number of labor hours that all the households in the economy plan to work during a given period. The real wage rate influences the quantity of labor supplied because what matters to households is not the number of dollars they earn but what they can do with those dollars. The quantity of labor supplied increases as the real wage rate increases

Aggregate production function

is the relationship that tells us how real GDP changes as the quantity of labor changes when all other influences on production remain the same.

Classical Growth Theory

is the view that the growth of real GDP per person is temporary and that when it rises above the subsistence level, a population explosion eventually brings it back to the subsistence level.