Intro to Macro week 4 notes
Intro to Macro week 4 notes 22260
University of Memphis
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CHEM 111 - 02
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Ahsiahna Ford (Icey)
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This 3 page Class Notes was uploaded by Bradley Notetaker on Saturday February 13, 2016. The Class Notes belongs to 22260 at University of Memphis taught by Speer in Winter 2016. Since its upload, it has received 13 views. For similar materials see Intro to Macroeconomics in Economcs at University of Memphis.
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Date Created: 02/13/16
Chapter 6 lecture notes How do we make GDP comparisons between US and Peru and Norway? Convert GDP into US $$, using exchange rates : GDP per capita = GDP per capita in local currency X $/local currency exchange rate Convert Peru GDP by using the prices of goods and services in Peru relative to the prices of the same goods and services in the USA (purchasing power and parity) GDP per capita = GDP per capita in local currency X PPP adjustment Know the idea of PPP, but do not have to know how it really works PPP adjustments tend to make poor countries look richer than they really are The age structure and labor force participation rates vary across countries These variations impact income per capita Therefore, consider: Income per worker =GDP/#of people employed Catch –up effect Poorer countries tend to grow fastest Ultimately, it is productivity differences that drive per capita and income per worker differences across countries Productivity: The value of goods and services that a worker generates for each hour of work There is a positive relationship between income per capita and productivity HDI: Health Income and Education Productivity differences are the ultimate drivers of income per capita and income per worker differences across countries 4 reasons productivity differs: 1) Human capital (how skilled people are) 2) Physical capital (machines, factories, etc.) 3) Technology 4) Natural Resources Human Capital The stock of skills embodied in labor to produce output (can come from training or education) This stock of skills or total “efficiency units” of labor, is written: H=L x h h=average human capital L=number of workers There are huge differences in human capital across countries Average yrs of education (also a big dig difference in quality of schools) Technology Superior knowledge in production or more efficient production process so that more output can be produced with same amount of human capital and physical capital Macro uses the aggregate production function to model the relationship between aggregate GDP and its factors of production (H) Human cap (K) Physical cap (A) Technology o Factors of production o F(K,H) aggregate production function Diminishing Marginal Product Marginal contribution of either physical cap or total efficiency units of labor to GDP diminishes when we increase the quantity used of that factor “More is better” An increase in either physical cap or total efficiency units of labor leads to an increase in GDP Diminishing marginal product means that a country can’t get rich just by adding lots of physical capital , because eventually they will reach a limit With more advanced tech, more output can be produced with the same amount of physical capital and total efficiency units of labor Tech will shift production function up Advances in tech result mainly from purposeful optimizing decisions by entrepreneurs and firms Natural resources can also be a major factor in a country’s income per person Resources can either be: Renewable Nonrenewable