DOC PREVIEW
O-K-State ECON 2203 - Productivity and Its Determinants
Type Lecture Note
Pages 7

This preview shows page 1-2 out of 7 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 7 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 7 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 7 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

Econ 2203 1st Edition Lecture 9 Current LectureKeyEquationsExamplesDefinitionsImportant InformationOutline• Productivity and its determinants– Why does productivity matter for living standards? – What determines productivity and its growth rate?Productivity and Its determinants• What explains these large differences in living standards among countries and over time? Recall one of the Ten Principles (No.8): A country’s standard of living dependson its ability to produce goods and services (G&S)• This ability depends on productivity, the average quantity of G&S produced for each hour of aworker’s time. – More G&S produced, higher real GDP, higher living standards – Less G&S produced, lower real GDP, lower living standards Growth rate of productivity determines the growth rate of its average income and living standardA nation’s productivity is determined by four factors: physical capital per worker, human capital per worker, natural resources per worker, and technology knowledgePhysical Capital Per Worker- Physical Capital (P): The stock of equipment and structures used to produce goods and services These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- Productivity is higher when the average worker has more capital (machines, equipment, etc.) A. 1 fishing pole B. 2 fishing poles Human Capital Per Worker- Human Capital (H): the knowledge and skills workers acquire through education, training, and experience- Productivity is higher when the average worker has _____ human capitalA. 5-year fishing experience B. Never fishing before Natural Resources Per Worker- Natural Resources (N): the inputs into production that nature provides, e.g., land, mineral deposits– Renewable: trees – Nonrenewable: oilA. B.Technological Knowledge- Technological knowledge (A): society’s understanding of the best way to produce Goodsand services.A. With a Fish Finder B. Without a Fish Finder Technological Knowledge* Technological progress does not only mean a better fishing pole, a faster computer, a higher-definition TV, or a smaller cell phone. * It means any advance in knowledge that boosts productivity (allows society to get more output from its resources). – e.g., Henry Ford and the assembly line.Technological Knowledge vs. Human Capital- Example 1: A new method to brew a smoother coffeeTechnological knowledge Refers to society’s understanding of how to produceG&S - Example 2: People in Jamaica normally spend 1 year to learn the skill of making espresso. Human capitalThe effort to acquire the knowledgeBoth are important for productivity.Economic Growth and Public PolicyHow can public policy do to raise productivity and living standards?/ – Physical Capital per Worker (K/L)• Policies attract Saving and Investment • Policies attract Investment from Abroad/ – Human Capital per Worker (H/L)• Policies encourage Education• Policies benefit the Health of the population / – Technological Knowledge (A)• Policies promote Trade Freely• Policies encourage Research and Development / – Natural Resources per Worker (N/L) • Policies promote Trade Freely B – Other polices related to Population Growth (L), Property Rights and Political Stability BSaving and InvestmentSaving rate = saving/income30%Domestic Households ($100 income) – 70%Bank: $30Consumption: $70Bank ($30)  Domestic FirmsDomestic firms ($30)  Investment “purchasing capitals”Saving and Investment- Government policies aimed at increasing a country’s saving rate can increase investmenton capital goods (K) and productivity and, thereby, long-term economic growth and living standard – Saving rate: the percentage GDP devoted to saving rather than consumption – Savings = Investment (spending by firms on capitals) • Why not save all the money?– A trade-off between current and future consumption • More saving, less consumption today (income is fixed)• More saving, more investment today• More investment, more goods and services produced• More consumption tomorrowDiminishing Returns and the Catch-Up Effect• If saving rate remains high, does the growth rate of GDP stay high indefinitely or only for aperiod of time? Diminishing returns to capital: - As the stock of capital K rises, the extra output produced from an additional unit of capital K falls • In the long run, the higher saving rate leads to a higher level of productivity and income but not to higher growth in these variables. Diminishing Returns:- If workers already have a lot of K, giving them more increases productivity fairly little.- If workershave little K, giving them more increases their productivity a lot.-The catch-up effect: The property whereby poor countries tend to grow more rapidly than rich ones- Rich country’s growth- Poor country’s growthInvestment from Abroad• Government can encourage investment abroad to raise domestic capital per person and hence productivity, economic growth and living standards. Principles of MacroeconomicsLecture Notes> VERY DETAILED> COLOR CODED> Easy to read> May include information that was stated directly from the teacher in class<p>Principles of Macroeconomics</p><p>Introduction to Macroeconomics</p><p>Hui


View Full Document

O-K-State ECON 2203 - Productivity and Its Determinants

Type: Lecture Note
Pages: 7
Download Productivity and Its Determinants
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Productivity and Its Determinants and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Productivity and Its Determinants 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?