+ Solve. 1. Assume the US economy is currently at long run equilibrium with an expected rate of inflation of 3%, natural unemployment rate of 5% and a nominal interest rate of 6%. (a) Using a graph of the short run and long run Phillips curve illustrate the US economy. Label this equilibrium as point A. (b) Calculate the real interest rate. (c) Assume that the United States increases military spending by $100 B (i) Identify the policy: discretionary or automatic. Explain. (ii) Illustrate this event as point B on your graph from part (a) (iii) How does the event from part (c) affect household expectations in the long run? (d) What is the impact of the increase in spending on the long run Phillips curve?

+ Labor Productivity & Long Run Growth C-5, C-4, C-3: Students will demonstrate their understanding of the factors that contribute to long run growth by researching multiple countries to draw conclusions about the institutions, history, geography, culture, and technology that cause unequal growth Homework: 1. Mod Notes Open-notes quest Wednesday 2/4 2. Research Country Bring materials needed for poster!

+ * U.S. Labor Productivity (per worker)

+ Here’s a hint…

+

+ The Walmart Effect & Labor Productivity Retail-labor productivity growth more than tripled after 1995 Everyone in retail business knew about computers but Walmart figured out HOW to use them 1995: Walmart begins tracking inventory online, using barcode scanner, and IT systems to communicate directly with supplier, all practices now considered mainstream. 1997: The company installed the largest private satellite communication system in the U.S., linking the company's operations through voice, data and video communication 1999: Walmart celebrated its first $1 billion sales week. 2000: Walmart.com was founded, allowing U.S. customers to shop online. 2009: For the first time, Walmart exceeded $400 billion in annual sales. 2015: 90% of all Americans live within 15 miles of a Walmart

+ Sources of Growth in Productivity 1. Physical Capital: human made goods used to produce other goods and services (factories and machinery) 2. Human Capital: the improvement in labor created by the education and knowledge of members of the workforce 3. Technology: technical means for the production of goods and services *widely considered the most important These 3 economic variable are the building blocks of long term economic growth!

+ How do we quantify long term growth? All about Real GDP per capita Calculation: real GDP/population Measures total value of all final goods and services produced in an economy, not accounting for changes in price level (focused on real output) Link between real GDP and income has been proven, provides insight to purchasing power of society By including “per capita” data we can isolate the effect of changes in the population If GDP is constant while population grows, standard of living falls If GDP and population growth are both the same, standard of living is unchanged Sustained growth in Real GDP per capita occurs only when the output generated per worker increases steadily (increase in labor productivity)

+ Economic Growth and Productivity Case Study Assignment How do we account for the different rates of growth across time and space? What elements are crucial for long term growth and productivity? Is it possible to generate long term economic growth in an economy from policy actions? Goal: Research the key factors of growth and productivity in 7 different nations, create a poster to illustrate the state of economic growth focused on the major indicators: GDP per capita, labor productivity (as a result of technology, human and physical capital), natural resources, government, infrastructure, and property rights. So we know productivity = long run growth. How is productivity achieved?

+ Groups and Countries: P. 1 Dex, Tim, Nate…Iraq James, Ally, Katherine…Venezuela Cole, Zack, Quinn…Germany April, Cameron, Willner…China Jace, Jill, Dizzy…India Chris, Grisha, Liam…Chad Steph, Emma, Nick…Chile

+ Groups and Countries: P. 2 Alan, Liam…Iraq Matt(y), Conor…Venezuela Biester, Taicher…Germany Sloane, Phil…China Mason, Laura, AJ…India Nick, Steve…Chad Ally, Jack…Chile Parke, Suhee…USA

+ Groups and Countries: P. 3 Max, Jim, Frank…Iraq Morgan, Oni, DuTot…Venezuela Sophia, Courtney, Yuge…Germany Purdy, Ethan, Nina…China Kirin, Jonathan, Anna-Charlotte…India Grace, Dana, Katherine…Chad Reiss, Caroline, Ben…Chile Natalie, Nick, Ankine, Kaylee…U.S.A

+ Groups and Countries: P. 4 Liz, Jack, John…Iraq Sarah, Chris, Gloria…Venezuela Matt, Megan, Ryan…Germany Tyler, Katherine, Andy…China Eli, Pat, Brett…India Alex, Missy, Dylan…Chad Chris, Selena, Christian…Chile Liudas, Ryan, Ryann…U.S.A.

+ Groups and Countries: P. 7 Amanda, John, Jess…Iraq Ben, Tori, G…Venezuela Sups, Aurora, Yikai…Germany Alex, Kate, Bassi…China Kees, Jimmy, Rob…India Matt, Jake, Manoo…Chad Presto, Dan, Sophia…Chile Emily, Chris, Zack…U.S.A

+ Groups and Countries: P. 8 Taicher, Elise, Nick…Iraq Dan, Max, Doms…Venezuela Rahul, Eric, Steve…Germany Friedman, Iredale, Paul…China Beer, Tom, Jenn…India Cook, Dana, Eddie…Chad Pepin, Cauley, Will…Chile