April 28, 2014

1. April 28, 2014 • Return & Review Unit 4 Exam • The Next 3 Weeks… • Begin Unit 5? : Economic Growth and Productivity

2. Economic Growth and Productivity Economic Growth is measured by changes in Real GDP (value of economic output minus inflation) or by changes in Real GDP per capita. 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 measures Standard of Living

3. There are some problems with using GDP to measure a nation’s true standard of living 3

4. The top 10 most populated countries

5. GDP Per Capita

6. Long Run Economic Growth • Long run economic growth occurs when a country can produce more of a good without having to give up another good or when a country can produce more overall. • On the AS/AD graph, long run economic growth is demonstrated by a rightward shift of the LRAS curve. • On the PPF curve, you can see how opportunity cost fits in.

7. Long Run Economic Growth • 3 Important Sources of Long Run Economic Growth: • Quantity and Quality of labor (improvements in education, training, health of workers, etc.) • Quantity and Quality of capital (Investment, research, development, etc.) • Level of technology • Increases in any of these will increase real GDP.

8. April 29, 2014 • Macro Unit 5 Exam Date Change: Thursday, May 1!!! • Continue Unit 5- Economic Growth and Productivity: Activity 6-1/6-2 • Return Recent Vocab/Current Events • AP Micro Review Quiz #1 Tomorrow

9. April 30, 2014 • Finish Unit 5 Notes: Policies to Promote Economic Growth • Activity 6-3 • AP Micro Unit 1 Review Quiz

10. Economic Growth • Investing in the following factors contribute to a nation’s productivity, and thus its’ economic growth: • Human capital: the knowledge and skills a laborer possesses. • Physical capital: any manufactured unit that is used in production (private & public- infrastructure) • Technological Advancement • Nature’s Gifts • In addition to above list, Government/Fed Policies

13. 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)

14. Investment Spending leads to an increase in physical capital • Investment Spending comes from domestic savings or inflows of foreign capital • Business R&D is a key to increasing physical capital

15. 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

16. THE REAL PRICE OF OIL IS BASED ON DEMAND AND NOT IMPORTATION ISSUE: (SEE THE NEXT SLIDE)

17. 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

18. 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

19. Long-run Economic Growth and the Production Possibilities Curve C C’ K K’

20. Remember this? Economic Growth and Potential Growth for the Production Possibility Curve

21. 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 it’s long run equilibrium.

22. You must distinguish between long-run growth and short-run business cycle (SRAS)

23. The Long-run Aggregate Supply Curve

24. Long-run Growth and the LRAS Curve

25. From the Short Run to the Long Run: Notice the impact of wages on SRAS since wages are an input