 Key statistic to track economic growth ◦ GDP—total value of economy’s production/income ◦ Real—adjusted for inflation) ◦ per capita—to remove effect of population changes  Income of “typical” family normally grows in proportion to per capita income

 Long-run growth is achieved gradually  At any given annual growth rate, use Rule of 70 to determine how long it takes real GDP to double # of years to double = 70/annual growth rate

 Key to long-run growth is rising productivity  Output per worker (GDP/number of people working)  In the long-run, population growth tends to explain employment growth (so this is negated in growth of real GDP per capita)

1. Physical capital – Increases in manufactured goods used to produce other goods & services 2. Human capital – Improvement in education, knowledge & health 3. Technology – Progress in technical means for production ◦ Increases in Total Factor Productivity are a result of technology

 Diminishing returns to physical capital – Increases in amount of physical capital leads to smaller increases in productivity  Diminishing returns for tech and human capital as well  Growth accounting estimates contribution of each major factor in Aggregate Production Function and separates out the effects of the 3 factors

 Ceteris paribus, countries with abundant valuable resources have higher RGDP per capita  In the real world, the other 3 factors are much more important determinants

 Read the case study on South Korea, Argentina, or Nigeria  In your groups, summarize the background info of the region’s economic status and factors that either lead to positive, stagnant, or negative economic growth on a large post- it note  Elect 1 or 2 spokespersons and report to class your findings

1.East Asia grew significantly over last 30 years due to: a.high national savings rate b.very good educational system c.substantial tech progress Convergence hypothesis – Difference in real GDP per capita narrows over time because countries that start with lower GDP per capita tend to have higher growth rates

2. Latin America stagnated due to: a.lower rates of savings & investment b.low education emphasis c.Irresponsible government policy 3. Sub- Saharan Africa – unsuccessful due to: a.political instability b.Poor education & infrastructure c.Steady investment spending difficult d.Lack legal safeguards for property