Economic Growth

= I. Long Run Economic Growth Formulas A. Real GDP per Capita population 2. using per capita info allows us to measure standard of living B. Rule of 70 1. Number of years for _______70_______ variable to double annual growth rate of variable = https://www.youtube.com/watch?v=jbkSRLYSojo https://www.youtube.com/watch?v=QpdyCJi3Ib4

II. Sources of Long Run Growth Supply sources – where most long run growth comes from 1. Increase in quantity and quality of natural resources

How would you rather dig a hole? II. Sources of Long Run Growth Supply sources – where most long run growth comes from 1. Increase in quantity and quality of natural resources 2. Labor Productivity – the amount of output the average worker produces a. Physical Capital 1. increase in supply of capital goods 2. tools make workers more productive How would you rather dig a hole?

II. Sources of Long Run Growth Supply sources – where most long run growth comes from 1. Increase in quantity and quality of natural resources 2. Labor Productivity – the amount of output the average worker produces a. Physical Capital 1. increase in supply of capital goods 2. tools make workers more productive b. Human Capital 1. knowledge of workforce 2. health of workforce c. Technology

What technological change has fundamentally changed the way the world works?

Washing Technology In terms of economic and social changes the washing machine has been of more consequence than the internet. It has reduced the amount of work needed for household chores and allowed women to enter the work force. 1947 - the first front-loading automatic washing machine retailed at $249.50 First electric washing machine 1904 electric washing machine sales reached 913,000 units in 1928 Scrub Board invented 1797

II. Sources of Long Run Growth Supply sources B. Demand Factor – the expanding output must be purchased C. Efficiency 1. full employment 2. on the production possibilities curve

Production Possibilities Curve A. Illustrates tradeoffs B. Efficient use of resources falls along the curve C. Future growth is dependent on where along the curve the economy produces

Production Possibilities Curve Capital goods A B C D Consumer goods Point A – At this point the country is producing ONLY investment goods. Producing here will cause the curve to shift outward in the future Point D – At this point the country is producing ONLY consumer goods. As capital is lost due to wear and age (called depreciation) the curve will shift inward Choosing between point B and point C would depend on politics and other details of the economy

Aggregate Demand and Aggregate Supply Model A. LRAS is vertical at the point of potential output B. LRAS shifts right as potential output grows C. The same thing that shifts PPC will shift LRAS https://www.youtube.com/watch?v=k6q2G3BbanE

Government policies stimulate economic growth Supply Side economic stimulation Lower taxes on income earned from saving Encourages saving Increase the supply of loanable funds Decrease real interest rate Increase money firms invest Investment tax credit Reduces a firm’s taxes if it invests in physical capital

Government policies stimulate economic growth Supply Side economic stimulation Demand Side economic stimulation Lower income taxes a. Increases disposable income for households Increases household consumption and savings Increase in savings allows for increase in investment