chapter 6copyright ©2010 by south-western, a division of cengage learning. all rights reserved econ...
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Chapter 6 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
ECON
Designed byAmy McGuire, B-books, Ltd.
McEachern 2010-2011
6CHAPTERProductivity and Growth
Macro
Chapter 6 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
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Labor Productivity
Labor– 70% of production costs– Easily measured– Available statistics Labor productivity– Increases with• Human and physical capital per worker
Chapter 6 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
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Per-Worker Production Function
Relationship • Capital per worker• Output per worker Per-worker production function• Upward sloping• Diminishing slope• Diminishing marginal returns from capital Increased productivity• More capital per worker• Movement along PF
Chapter 6 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
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Per-Worker Production Function
PF
Out
put
per
wor
ker
y
Capital per worker0 k
The per-worker production function, PF, shows a direct relationship between the amount of capital per worker, k, and the output per worker, y.
The bowed shape of PF reflects the law of diminishing marginal returns from capital: As more capital is added to a given number of workers, output per worker increases but at a diminishing rate and eventually could turn negative.
Exhibit 2
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Impact of a Technological Breakthrough on the Per-Worker Production Function
A technological breakthrough increases output per worker at each level of capital per worker.
Better technology makes workers more productive.
This is shown by an upward rotation of the per-worker production function from PF to PF’.
An improvement in rules of the game would have a similar effect.
Exhibit 3
PF
Capital per worker0 k
PF’
Out
put
per
wor
ker
y
y’
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LO2
Productivity and Growth in Practice
Industrial market economies– Higher standard of living– 15% of world population– Produce 75% of world’s output Developing countries– Poor countries– Low standard of living– Less human and physical capital– Low labor productivity
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LO2
Percent of Adult Population with at Least a College Education: 2003 and 2006
Exhibit 4
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LO2 Long-Term Trend in U.S. Labor Productivity Growth: Annual Average by Decade
Exh
ibit
5
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Output per Capita
Standard of living– Output per capita– Real GDP per capita US– General upward trend– During recessions• Decrease in productivity
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U.S. Real GDP per Capita Has Nearly Tripled Since 1959LO2
Exh
ibit
7
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U.S. GDP per Capita Is Highest of Major Economies
LO2 Exhibit 8
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U.S. Real GDP per Capita Outgrew That of Most Other Major Economies Since 1982
LO2 Exhibit 9
Chapter 6 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
Technological Change and Unemployment
Technological change Job dislocations Displaced workers More affordable products Higher demand Increased employment and production “Does technological change lead to unemploymen
t?” No statistical evidence
LO3
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Research and Development
Basic research General search for knowledge First step for technological advancement Yields a higher return
to society Applied research Answer particular questions Develop specific products
LO3
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Industrial Policy
Industrial policy Government Use taxes, subsidies, regulations, coordination Nurture technologies Protect domestic industries Concerns Government’s efficiency Giveaway programs
LO3
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Do Economies Converge?
Convergence theory Developing countries Can grow faster than
advanced ones Should eventually
close the gap Explanations Adopt existing technologies Invest in human resources
LO3
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Do Economies Converge?
Evidence Few poor countries are closing the gap Others Slow growth Lower relative standard of living Trapped Explanations High birthrates; Difference in human capital Unstable economic environment No institutions; Bad infrastructures; Civil war
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