Econ 2203 1st Edition Lecture 8 Current LectureKeyEquationsExamplesDefinitionsImportant InformationOutline• Economic growth around the world– What are the facts about living standards and growth rates around the world?Economic Growth• One of the macroeconomic goal is economic growth • Economic growth: increasing GDP• Economic growth is a “long run” economics concept. • Real GDP measures our standard of living. It is a good gauge of economic prosperity. Economic GrowthEconomic growth rate (in year 2) GDP per person year 2 – GDP per person year 1/(GDP per person year 1) x 100% • Growth rate measures how rapidly real GDP per person grew in the typical year. • The growth rate of real GDP is a good gauge of economic progress. SummaryFact 1: The data on real GDP per person show that living standards very widely from country to countryFact 2: There are also great variations in growth rates of real GDP per person from country to countryFact 3: Because of differences in growth rates, the ranking of countries by income changes substantiallyover time– Richest countries have no guarantee they will stay the richestThese 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.– Poorest countries are not necessarily doomed to poverty forever. 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 - Productivity is higher when the average worker has more capital (machines, equipment, etc.) A. 1 fishing pole B. 2 fishing polesHuman 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 FinderTechnological 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?0 – Physical Capital per Worker (K/L)• Policies attract Saving and Investment • Policies attract Investment from Abroad 0 – Human Capital per Worker (H/L)• Policies encourage Education• Policies benefit the Health of the population 0 – Technological Knowledge (A)• Policies promote Trade Freely• Policies encourage Research and Development 0 – Natural Resources per Worker (N/L) • Policies promote Trade Freely D – Other polices related to Population Growth (L), Property Rights and Political