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## Week 10 Notes

by: Abigail Johnson

9

0

3

# Week 10 Notes ECN 222 - 005

Abigail Johnson
UNCW
GPA 3.59

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## About this Document

Week 10 Notes
COURSE
Macroeconomics
PROF.
Adam Talbot Jones
TYPE
Class Notes
PAGES
3
WORDS
CONCEPTS
Macroeconomics
KARMA
25 ?

## Popular in Economcs

This 3 page Class Notes was uploaded by Abigail Johnson on Thursday March 24, 2016. The Class Notes belongs to ECN 222 - 005 at University of North Carolina - Wilmington taught by Adam Talbot Jones in Spring 2016. Since its upload, it has received 9 views. For similar materials see Macroeconomics in Economcs at University of North Carolina - Wilmington.

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Date Created: 03/24/16
3/24/16 7:09 PM MONDAY 03/21 A country’s standard of living depends on its ability to produce goods and services • Ability depends on productivity. A nation’s workers are very productive, real GDP is large and incomes are high. • Produce more, have more When productivity grows rapidly, so do living standards What determines productivity growth rate? Production function (total amount of goods and services produced) Productivity function (total amount of goods and services produced per worker) Y= Af [L(labor)+ K(capital)+ H(human capital)+ N(natural resources)] • A= technology o Multiplies other inputs • The production function has the property constant returns to scale: changing all inputs by the same percentage causes output to change by that percentage o Ex: doubling all inputs (x2) causes output to double • Y/L = Af (1, K/L, H/L, N/L) o Productivity (capital per worker) o This equation shows that productivity (output per worker) depends on tools and resources available to each worker o Depends on: technology (A), capital per worker (K/L), Skills or human capital per worker (H/L), and natural resources per worker (N/L) Technological knowledge: society’s understanding of the best ways to produce g&s • Technological progress is not faster computers, higher-definition TV, better phones… • It means any advance in knowledge that boosts productivity (get more output for same amount of RSS) WEDNESDAY March 23, 2016 Democracy and free market needs property rights Production Function, where Y = output, RGDP, and national income Y = A f (L,K,H,N) Economic growth and public policy • Institutional framework (base) of economy must be sound • Institutions are the “humanely devised constraints that structure human interaction” o Governments o Property Rights } Non-extractive, “Non-corrupt,” and cooperative culture o Trust • Without law and order and dependable conditions significant growth will not occur Production Function Y/L = Af(K/L, H/L, N/L) • Boost productivity by increasing K, requires investment. • Scarcity à more capital requires producing fewer consumption goods (tradeoff) • Must reduce consumption to increasing saving to fund the production of investment goods. o Reduce consumption à Increase saving à Invest • Tradeoff between current and future consumption • Government can implement policies that raise saving and investment. o K will increase, causing productivity and living standards to rise. o But there is a Diminishing Returns to Capital (asymptote to maximum K possible) § As K rises, the extra output from an additional unit of K falls… § The Catch-up Effect: the property whereby poor countries tend to grow more rapidly than rich ones • Investments from abroad o Can save and invest on own or government can also encourage this: § Foreign Direct Investment: a capital investment (e.g., factory) that is owned and operated by a foreign entity § Foreign Portfolio Investment: a capital investment financed with foreign money but operated by domestic residents o Some of the returns flow back to countries that supplied the funds.

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