Ch. 6 Flashcards
output =
GDP = y
S of L =
GDP/population = y/p
y/p (SofL) =
y/l x l/pop
y/l =
labor productivity
l/pop =
% pop who works
% change y
economic growth rate
% change pop
pop growth rate
% change y/l
growth rate labor production
% change SofL =
% change y - % change pop
= % change y/l + % change l/pop
rule of 72
ex question: if x goes up at n% per year, then x doubles in 72/n years (must write n as a whole number!)
potential output =
yp
what is potential output?
the maximum sustainable output
Cobb Douglas Equation
yp = A L(1/2) K(1/2)
yp will rise if one of these three things happen:
- labor force goes up
- capital goods goes up
- technology goes up
unemployment formula
U% = # U/labor force x 100
what constitutes the “labor force”
unemployed + employed but NOT discouraged workers
why do we want U>0
because we want people to find jobs that match their skill set and this takes time
what is the max official U in the USA
25% in 1932
Japan U%
1-2%
USA U%
5-6%
EU U%
10+%
Convergence Theory
SL of all countries will eventually converge bc:
- poor countries will copy tech of rich countries
- rich countries will invest in poor countries (like China)
Evidence for Convergence Theory:
- CT holds true for similar countries i.e. rich and poor
- CT does not hold true in general i.e. the gap between the rich and the poor countries is growing wider
- CT appears to be holding true for the 4 asian tigers and China…who are being invested in by rich countries and growing SL
what is labor productivity and what happens when it rises
labor productivity = Y/L
when Y/L rises, SL rises..making countries go from poor to rich
how does labor productivity rise for rich countries?
technology advances (this includes improved management)
how does labor productivity rise in poor countries?
they see what rich countries do and copy…use capital goods
%change y/l > 0 in rich countries when:
technology rises
%change y/l > 0 in poor countries when:
k/l rises (k being capital goods)
what is k?
capital goods ie structures and equipment
what is the primary cost of economic growth
consume less now!!
- you and your family have less money for now
- countries must produce fewer C goods and more capital goods
