April 28, 2014
1. Return & Review Unit 4 Exam
2. The Next 3 Weeks…
3. Begin Unit 5? : Economic Growth and Productivity
Economic Growth and Productivity
Economic Growth is measured by changes in
Real GDP (value of economic output minus
inflation) or by changes in Real GDP per
capita.
Real GDP per capita is real GDP divided by the
total population (It identifies on average how
many products each person makes)
Real GDP per capita measures Standard of Living
2
There are some problems with using GDP to measure
a nation’s true standard of living
3
The top 10 most populated countries
4
GDP Per Capita
5
Long Run
Economic Growth
• Long run economic growth
occurs when a country can
produce more of a good
without having to give up
another good or when a
country can produce more
overall.
• On the AS/AD graph, long run
economic growth is
demonstrated by a rightward
shift of the LRAS curve.
• On the PPF curve, you can see
how opportunity cost fits in.
Long Run Economic Growth
• 3 Important Sources of Long
Run Economic Growth:
1. Quantity and Quality of labor
(improvements in education,
training, health of workers,
etc.)
2. Quantity and Quality of capital
(Investment, research,
development, etc.)
3. Level of technology
• Increases in any of these will
increase real GDP.
April 29, 2014
1. Macro Unit 5 Exam Date Change: Thursday, May
1!!!
2. Continue Unit 5- Economic Growth and
Productivity: Activity 6-1/6-2
3. Return Recent Vocab/Current Events
4. AP Micro Review Quiz #1 Tomorrow
April 30, 2014
1. Finish Unit 5 Notes: Policies to Promote
Economic Growth
2. Activity 6-3
3. AP Micro Unit 1 Review Quiz
Economic Growth
• Investing in the following factors contribute to a nation’s
productivity, and thus its’ economic growth:
1. Human capital: the knowledge and skills a laborer
possesses.
2. Physical capital: any manufactured unit that is used in
production (private & public- infrastructure)
3. Technological Advancement
4. Nature’s Gifts
5. In addition to above list, Government/Fed Policies
What About Natural Resources?
•Other things equal, more natural resources leads to higher GDP per
capita
•Other things are often NOT equal (Political / Legal instability)
• Investment Spending leads to an increase in
physical capital
• Investment Spending comes from domestic
savings or inflows of foreign capital
• Business R&D is a key to increasing physical
capital
• The Role of Government in
Promoting Economic
Growth
• Governments and
Physical Capital
• infrastructure
• Governments and
Human Capital
• Governments and
Technology
• Political Stability,
Property Rights and
Excessive Intervention
THE REAL PRICE OF OIL IS BASED ON DEMAND AND NOT IMPORTATION
ISSUE: (SEE THE NEXT SLIDE)
AS THE ECONOMY GROWS CONSUMPTION (DEMAND) GROWS WITH
IT AND THIS, NOT IMPORTATION ISSUES, ARE THE CAUSE OF
HIGHER PRICES AT THE GAS PUMP TODAY
• LONG-RUN ECONOMIC GROWTH IS BASED
UPON THE SUSTAINED RISE IN THE
PRODUCTION OF GOODS AND SERVICES
• SHORT-RUN “UPS” AND “DOWNS” ARE THE
RESULT OF THE BUSINESS CYCLE
Long-run Economic Growth and the
Production Possibilities Curve
C
C’
K
K’
Remember this? Economic Growth and Potential Growth for the Production
Possibility Curve
• In the AD/AS model, a short-run fluctuation of
the business cycle would be seen as a shift of
the AD curve or SRAS curve. For example, a
recessionary gap may result in a decrease in
input prices and an increase in SRAS, but that
does not mean the same thing as economic
growth. Likewise, an inflationary gap results
not in growth, but in a return of the economy
to it’s long run equilibrium.
You must distinguish between long-run growth
and short-run business cycle (SRAS)
The Long-run Aggregate Supply Curve
Long-run Growth and the LRAS Curve
From the Short Run to the Long Run: Notice the impact of wages on SRAS since wages are an input