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AP Macroeconomics

AP Macroeconomics. Economic Growth & Productivity. Economic Growth Defined. Sustained increase in Real GDP over time. Sustained increase in Real GDP per Capita over time. Why Grow?. Growth leads to greater prosperity for society . Lessens the burden of scarcity.

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AP Macroeconomics

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  1. AP Macroeconomics Economic Growth & Productivity

  2. Economic Growth Defined • Sustained increase in Real GDP over time. • Sustained increase in Real GDP per Capita over time.

  3. Why Grow? • Growth leads to greater prosperity for society. • Lessens the burden of scarcity. • Increases the general level of well-being.

  4. Conditions for Growth • Willingness to sacrifice current consumption in order to grow • Saving • Trade—specialization in order to minimize countries’ opportunity cost

  5. Physical Capital • Tools, machinery, factories, infrastructure • Physical Capital is the product of Investment. • Investment is sensitive to interest rates and expected rates of return. • It takes capital to make capital. • Capital must be maintained (counts as Ig).

  6. Technology & Productivity • Research and development, innovation and invention yield increases in available technology. • More technology in the hands of workers increases productivity. • Productivity is output per worker. • More Productivity = Economic Growth.

  7. Human Capital • People are a country’s most important resource. Therefore human capital must be developed. • Education • Access to technology

  8. Growth Illustrated LRAS SRAS PL P AD YF GDPR

  9. Growth Illustrated LRAS PL SRAS P AD YF GDPR

  10. Growth Illustratedor . .  Capital Goods  PPC PPC1  Consumer Goods

  11. Hindrances to Growth • Economic and Political Instability • High inflationary expectations • Lack of Savings • Excess current consumption • Failure to maintain existing capital • Crowding Out of Investment • Government deficits & debt increasing long term interest rates! • Trade Barriers • Import quotas • Tariffs • Country denies access to their markets • Illegal practices such as “dumping”

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