Long Run Economic Growth Lesson 37 Sections 37

Long Run Economic Growth Lesson 37 Sections 37, 38

Comparing Economies Across Time And Space (37) • Real GDP per Capita • Growth Rates – Rule of 70 (70 years to double) • Sources of Long-Run Growth – The Crucial Importance of Productivity • Labor Productivity needs to steadily increase for growth – Explaining Growth in Productivity • Physical Capital – machines that aid productivity • Human Capital – education • Technology – probably most important driver of growth

Productivity and Growth (38) • Accounting For Growth: The Aggregate Production Function – Aggregate Production Function • How physical capital, education, and technology affect productivity person – Diminishing Returns to Physical Capital • As physical capital is added (all other things being equal) the productivity gains shrink – Growth Accounting • Allows for accounting of the effects of greater physical and human capital on economic growth – Total Factor Productivity • The output with a given amount of physical and human capital, and labor • What About Natural Resources? – Countries that have excellent natural resources tend to have higher productivity rates, but resources are finite.

Success, Disappointment, and Failure • East Asia’s Miracle • Growth rates of 7% and higher for most of the last half of the 1900’s • High savings, good education, high investment – Convergence Hypothesis • Relative backwardness • Latin American Disappointment – Low savings, low education, high inflation, bank failures • Africa’s Troubles – War, corruption, AIDS, Ebola, Malaria, Debt