Economic Growth

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Economic Growth
Sustained expansion of production possibilities measured as the increase in Real GDP over a given period
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Calculate growth rate
(Real GDP current year - Real GDP previous year) / Real GDP previous year * 100
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Real GDP per capita grows when...
Real GDP grows faster than population
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Rule of 70
The number of years it takes for the level of any variable to double is approx. 70/annual % growth rate
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Average growth rate 1912-2012
1.6% a year
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Model to determine potential GDP
Aggregate production function and aggregate labour market
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Growth of potential GDP
Growth of supply of labour, growth of labour productivity
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Population growth
Increases potential GDP but decreases potential GDP/hour of labour
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Key to increasing living standard is
Increase in labour productivity
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Preconditions for labour productivity growth
Incentive system created by firms, markets, property rights and money
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Labour productivity growth caused by
Physical capital growth, human capital growth, technological advances
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Classical Growth Theory
Growth of real GDP/capita is temporary. Population explosion will decrease real GDP/capita and we will return to primitive standard of living
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Neoclassical Growth Theory
Real GDP/capita grows because technological change induces saving and investment. No population explosion because increasing opportunity cost for women to have children
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New Growth Theory
Perpetual motion economy. People want better living standards, which creates an incentive to perpetual innovation
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Policies for faster growth
Saving, Research and Development, Education, International aid to developing nations, International trade
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Other cards in this set

Card 2

Front

Calculate growth rate

Back

(Real GDP current year - Real GDP previous year) / Real GDP previous year * 100

Card 3

Front

Real GDP per capita grows when...

Back

Preview of the front of card 3

Card 4

Front

Rule of 70

Back

Preview of the front of card 4

Card 5

Front

Average growth rate 1912-2012

Back

Preview of the front of card 5
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