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Chapter 12

Chapter 12. Section 3. Real GDP per capita. Real GDP divided by the total population “per capita” means for each person Considered the best measure of a nation’s standard of living If real GDP rises faster than the population, real GDP per capita will rise as well as the standard of living.

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Chapter 12

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  1. Chapter 12 Section 3

  2. Real GDP per capita • Real GDP divided by the total population • “per capita” means for each person • Considered the best measure of a nation’s standard of living • If real GDP rises faster than the population, real GDP per capita will rise as well as the standard of living

  3. GDP and Quality of Life • GDP can be used to measure standard of living but cannot be used as a complete measure of people’s quality of life • GDP excludes the state of the environment or the level of stress that individuals feel in their daily lives • While real GDP per capita represents the average output per person in an economy, it tell us nothing about how the output is distributed

  4. Capital Deepening • Labor producitivityis used to describe the amount of output produced per worker • Process of increasing the amount of capital per worker • One of the most important sources of growth in modern economies • Human Capital – productive knowledge and skills acquired by a worker through education and experience • Training programs and on-the-job experience strengthen human capital

  5. Saving and Investment • Output can only be consumed or invested, whatever is not consumed is invested • Saving – income that is not used for consumption • Savings rate – proportion of disposable income that is saved • Higher saving→HigherInvestment→Higher amounts of capital per worker • In the long run, more saving will lead to higher output and income for the population, raising GDP and the standard of living

  6. Population Growth • Does not necessarily prevent economic growth • If the population grows while the supply of capital stays the same, the amount of capital per worker will shrink

  7. Government • If government raises tax rates to pay for additional services or to finance a war, households will have less money • As a result, people will reduce their saving and investment will then decrease

  8. Foreign Trade • Trade deficit – a situation in which the value of goods a country imports is higher than the value of goods it exports • Running a trade deficit will foster capital deepening if the imports consist of investment goods

  9. Technological Progress • An increase in efficiency gained by producing more output without using more inputs • New Machines, New Knowledge, New Methods for organizing production • Robert Solow developed a method for measuring the impact of technological progress on economic growth • Determine how much growth in output comes from increases in capital and how much comes from increases in labor… what’s left must be an increase from technological growth

  10. Causes of technological progress • Scientific Research • Innovation • Scale of the Market • Education and Experience • Natural Resource Use

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