economic growth (L5) Flashcards
economic growth
sustained expansion in productive capacity of the economy measured with growth rates
growth rate
gdp in current year-gdp last year/gdp last year x100
hockey stick of economic growth
up to the 18th century gdp was flatlined because industrial revolution but many countries were left behind
aggregate production function
Y=K^aL^1-a
shows how real GDP is produced with factors of production
malthusian growth theory
growth in real gdp leads to population growth that holds back real gdp per person, diminishing returns with too big of a population assuming capital is fixed/ doesn’t rise as much as labour does, explains flatline of hockey stick
neoclassical growth theory
when gdp rises some income is saved which increases capital, so there aren’t diminishing returns
it assumes fixed saving
income growth can be explained by productivity
endogenous growth theory
focus on productivity determined by set of inputs (human capital, r&d, institutions)
increasing inputs increases productivity (education, training, subsidies for r&d, improving institutions)
economic growth
sustained expansion in productive capacity
growth rate
real gdp current-real gdp prior/ prior x100
approximate growth rate
ln(real gdp p.p)-ln(real gdp p.p prior) x100
real gdp pp
£6755.46 2016
£6849.71 2017
find approximate growth rate and growth rate
1.395% growth rate
1.386% approx
real gdp pp
real gdp/population
real gdp growth-population growth
rule of 70
years for level to double=70/growth rate
2% doubles in 35 years etc
suppose real gdp pp is 100 and grows at 5% per year
what will gdp be after 1 or 2 years?
(1+0.05)^1 100=105
(1+0.05)^2 100=110.25
read slide 31
No of years
n=ln(GDP in n years)-ln(GDP today) / ln(1+g)
