Institute of International Education MACROECONOMIC IN THE LONG RUN Production and growth Saving, Investment & Financial system The Basic tools of Finance Unemployment 2 1 2 2 2 3 2 4 Institute of Inte[.]
MACROECONOMIC IN THE LONG-RUN 2.1 Production and growth 2.2 Saving, Investment & Financial system 2.3 The Basic tools of Finance 2.4 Unemployment Institute of International Education 2.1 Production and growth ▪ What are the facts about living standards and growth rates around the world? ▪ Why does productivity matter for living standards? ▪ What determines productivity and its growth rate? ▪ How can public policy affect growth and living standards? Institute of International Education A typical family with all their possessions in the U.K., an advanced economy 2016: GDP per capita: $39,900 Life expectancy: 81 years Adult literacy 99% A typical family with all their possessions in Mexico, a middle income country 2016: GDP per capita: $8,200 Life expectancy: 77 years Adult literacy: 94.5% A typical family with all their possessions in Mali, a poor country 2016 GDP per capita: $780 Life expectancy: 58 years Adult literacy: 33% Economic Growth Computing of economic growth: by % changes in real GDP Yt − Yt −1 gt = 100% Yt −1 While Productivity ▪ Recall one of the Ten Principles from Chap 1: A country’s standard of living depends on its ability to produce goods & services ▪ This ability depends on productivity, the average quantity of goods & services produced per unit of labor input ▪ Y = real GDP = quantity of output produced L = quantity of labor so productivity = Y/L (output per worker) Institute of International Education Determinants of Productivity – Physical capital • Stock of equipment and structures – Human capital • Knowledge and skills that workers acquire through education, training, and experience – Natural resources • Nature, such as land, rivers, mineral deposits… – Technological knowledge • Knowing the best ways to produce • Innovations or Steve Jobs’ “think different” Institute of International Education Physical Capital Per Worker ▪ The stock of equipment and structures used to produce goods & services is called [physical] capital, denoted K ▪ K/L = capital per worker ▪ Productivity is higher when the average worker has more capital (machines, equipment, etc.) Institute of International Education Human Capital Per Worker ▪ Human capital (H): the knowledge and skills workers acquire through education, training, and experience ▪ H/L = the average worker’s human capital ▪ Productivity is higher when the average worker has more human capital (education, skills, etc.) Institute of International Education ... poor country 20 16 GDP per capita: $780 Life expectancy: 58 years Adult literacy: 33% Economic Growth Computing of economic growth: by % changes in real GDP Yt − Yt ? ?1 gt = 10 0% Yt ? ?1 While Productivity.. .2. 1 Production and growth ▪ What are the facts about living standards and growth rates around the world? ▪ Why does productivity matter... capita: $39,900 Life expectancy: 81 years Adult literacy 99% A typical family with all their possessions in Mexico, a middle income country 20 16 : GDP per capita: $8 ,20 0 Life expectancy: 77 years