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AP MACRO MR. LIPMAN

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AP MACRO MR. LIPMAN KRUGMAN MODULES 37-40 ECONOMIC GROWTH & PRODUCTIVITY Sample Problem Real per capita GDP is: A) real GDP divided by the population B) real GDP ... – PowerPoint PPT presentation

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Title: AP MACRO MR. LIPMAN


1
AP MACRO MR. LIPMAN
  • KRUGMAN MODULES 37-40
  • ECONOMIC GROWTH PRODUCTIVITY

2
  • Module 37
  • Standard of living (or quality of life) can be
    measured, in part, by how well the economy is
    doing
  • But it needs to be adjusted to reflect the size
    of the nations population.
  • 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 is the best measure of a
    nations standard of living.

3
There are some problems with using GDP to measure
a nations true standard of living
3
4
The top 5 most populated countries
5
GDP Per Capita
6
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7
  • Real GDP per Capital

8
Real GDP per Capital
9
Growth Rates
  • Rule of 70

10
The Sources of Long-Run Growth
  • Physical Capital
  • (Machinery)
  • Human Capital
  • (Education)
  • Technology
  • (new methods of production)

11
Sample Problem
  • Real per capita GDP is
  • A) real GDP divided by the population
  • B) real GDP divided by the amount of capital
    available in the economy
  • C) not a good useful measure of human welfare
  • D) the depth of the ocean floor for sea monsters
  • E) measures the value of the nations financial
    markets

12
Sample Problem
  • Real per capita GDP is
  • A) real GDP divided by the population
  • B) real GDP divided by the amount of capital
    available in the economy
  • C) not a good useful measure of human welfare
  • D) the depth of the ocean floor for sea monsters
  • E) measures the value of the nations financial
    markets

13
Sample Problem
  • The key statistic to measure economic growth is
  • A) the size of the governments budget
  • B) real GDP per capita
  • C) life expectancy
  • D) the Dow Jones stock market index
  • E) the size of the national debt

14
Sample Problem
  • The key statistic to measure economic growth is
  • A) the size of the governments budget
  • B) real GDP per capita
  • C) life expectancy
  • D) the Dow Jones stock market index
  • E) the size of the national debt

15
Sample Problem
  • If a country has a population of 1,000 an area of
    100 square miles, and a GDP of 5,000,000, then
    its GDP per capita is
  • A) 500
  • B) 5,000
  • C) 50,000
  • D) 5,000,000
  • E) 50

16
Sample Problem
  • If a country has a population of 1,000 an area of
    100 square miles, and a GDP of 5,000,000, then
    its GDP per capita is
  • A) 500
  • B) 5,000
  • C) 50,000
  • D) 5,000,000
  • E) 50

17
Sample Problem
  • The rule of 70 indicates that a 6 annual
    increase in the potential level of real GDP would
    lead to the potential output doubling in about
    _____years.
  • A) 6
  • B) 12
  • C) 24
  • D) 30
  • E) 35

18
Sample Problem
  • The rule of 70 indicates that a 6 annual
    increase in the potential level of real GDP would
    lead to the potential output doubling in about
    _____years.
  • A) 6
  • B) 12
  • C) 24
  • D) 30
  • E) 35

19
Sample Problem
  • If real GDP doubles in 35 years, its average
    annual growth rate is approximately______?
  • A) 1
  • B) 2
  • C) 3
  • D) 4
  • E) 7

20
Sample Problem
  • If real GDP doubles in 35 years, its average
    annual growth rate is approximately______?
  • A) 1
  • B) 2
  • C) 3
  • D) 4
  • E) 7

21
Sample Problem
  • The Rule of 70 applies
  • A) only to GDP
  • B) only to GDP per capita
  • C) to any growth rate
  • D) only to developed countries
  • E) only in games of horseshoes

22
Sample Problem
  • The Rule of 70 applies
  • A) only to GDP
  • B) only to GDP per capita
  • C) to any growth rate
  • D) only to developed countries
  • E) only in games of horseshoes

23
Module 38
  • PRODUCTIVITY AND GROWTH

24
Accounting for Growth The Aggregate Production
Function
  • Aggregate Production Function
  • Diminishing Returns to Physical Capital
  • Growth Accounting
  • Total Factor Productivity

25
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26
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27
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28
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)
  • Malthus

29
Success, Disappointment, and Failure
  • East Asias Miracle
  • convergence hypothesis
  • Latin Americas Disappointment
  • Africas Troubles

30
Are Economies Converging?
31
Sample Problem
  • In the long run an increase in saving will
    generally
  • A) reduce the rate of economic growth
  • B) leave the rate of economic growth unchanged
  • C) increase the rate of economic growth
  • D) increase consumption simultaneously
  • E) decrease the standard of living

32
Sample Problem
  • In the long run an increase in saving will
    generally
  • A) reduce the rate of economic growth
  • B) leave the rate of economic growth unchanged
  • C) increase the rate of economic growth
  • D) increase consumption simultaneously
  • E) decrease the standard of living

33
Sample Problem
  • Which of the following will NOT increase the
    productivity of labor?
  • A) technological improvements
  • B) an increase in the capital stock
  • C) improvements in education
  • D) an increase in the size of the labor force
  • E) a lower literacy rate

34
Sample Problem
  • Which of the following will NOT increase the
    productivity of labor?
  • A) technological improvements
  • B) an increase in the capital stock
  • C) improvements in education
  • D) an increase in the size of the labor force
  • E) a lower literacy rate

35
Sample Problem
  • Investment in human capital shifts the aggregate
    production function
  • A) downward
  • B) leftward
  • C) inward
  • D) rightward
  • E) upward

36
Sample Problem
  • Investment in human capital shifts the aggregate
    production function
  • A) downward
  • B) leftward
  • C) inward
  • D) rightward
  • E) upward

37
Sample Problem
  • Physical capital would include
  • A) the education or knowledge a worker has in his
    or her physical being
  • B) the tools a worker has to work with
  • C) the money available for the worker to use
  • D) the stocks and bonds in an individuals
    portfolio
  • E) the natural resources a worker has to work with

38
Sample Problem
  • Physical capital would include
  • A) the education or knowledge a worker has in his
    or her physical being
  • B) the tools a worker has to work with
  • C) the money available for the worker to use
  • D) the stocks and bonds in an individuals
    portfolio
  • E) the natural resources a worker has to work with

39
Module 39 Economic Growth Policy
  • Investment Spending leads to an increase in
    physical capital
  • Investment Spending comes from domestic savings
    or inflows of foreign capital
  • Business RD is a key to increasing physical
    capital

40
  • 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

41
AN EXAMPLE OF HOW INVESTMENT IN HUMAN CAPITAL CAN
LEAD TO INCREASED GROWTH AND A HIGHER GDP PER
CAPITA
42
THE REAL PRICE OF OIL IS BASED ON DEMAND AND NOT
IMPORTATION ISSUE (SEE THE NEXT SLIDE)
43
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
44
THE ISSUE OF GROWTH AND ENVIORNMENTAL DAMAGE IS A
WORLD-WIDE ISSUE AND NOT A UNITED STATES ISSUE
ALONE
45
ENVIORNMENTAL CONCERNS
  • Pollution is a negative externality because it
    allows firms to impose a cost on society without
    having to pay compensation
  • Many have called for cap and trade policies
    which impose costs and limits/purchases/trades on
    firms who are engaged in pollution type
    industries.

46
MODULE 40
  • 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

47
Long-run Economic Growth and the Production
Possibilities Curve
C
C
K
K
48
Remember this? Economic Growth and Potential
Growth for the Production Possibility Curve
49
Actual and Potential Output from 1989 to 2009
50
  • 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 its
    long run equilibrium.

51
You must distinguish between long-run growth and
short-run business cycle (SRAS)
52
The Long-run Aggregate Supply Curve
53
Long-run Growth and the LRAS Curve
54
From the Short Run to the Long Run Notice the
impact of wages on SRAS since wages are an input
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