Term
| Over the last 100 years, the average US growth rate in real GDP per person was about.. |
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Definition
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Term
| Two broad sources of the growth of potential GDP growth |
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Definition
-the supply of labor
-labor productivity |
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Term
increase in labor productivity effect on
-real wage rate
-equilibrium quantity of labor
-potential GDP
-potential GDP per hour of labor |
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Definition
-increases the real wage rate
-increases the equilibrium quantity of labor
-increases potential GDP
-increases potential GDP per hour of labor |
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Term
| Law of diminishing returns |
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Definition
each additional hour of labor increases real GDP by successively smaller amounts
-because of diminishing returns, firms will hire more labor only if the real wage rate falls to match the fall in the extra output produced by that labor |
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Term
| Effect of population growth on supply of labor and |
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Definition
-increase in population brings growth in the supply of labor (by the households workers), does not change the demand for labor (by the firms) or the production function
-(see graph 6.7a)
-increased quantity of labor produces more output and potential GDP increases |
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Term
| increase in aggregate labor hours effect on potential GDP per hour of labor |
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Definition
-increase in population increases the full-employment quantity of labor, increases potential GDP, and lowers the real wage rate
-but diminishing returns bring a decrease in potential GDP per hour of labor
-(see figure 6.7b) |
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Term
Labor productivity
-effect on potential GDP |
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Definition
the quantity of real GDP produced by an hour of labor
-calculated by dividing real GDP by aggregate labor hours
-increase in labor productivity increases potential GDP because: labor is more productive and more labor is employed
-(see figure 6.8) |
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Term
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Definition
the quantity of goods and services that an hour of labor earns
-the money wage rate divided by the price level
-money wage rate: number of dollars that an hour of labor earns |
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Term
| Most important requirement for growth in potential GDP is |
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Definition
| sustained growth in Labor Productivity |
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Term
| Growth of labor productivity depends on |
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Definition
-physical capital growth (investment)
-human capital growth (education and training)
-technology improvement(technological innovation) |
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Term
| Physical capital in labor production |
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Definition
| the accumulation of new capital increases capital per worker and increases labor productivity |
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Term
| Human capital growth and labor productivity |
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Definition
| -human capital acquired through education, on-the-job training, and learning-by-doing is the most fundamental source of labor productivity |
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Term
| technological advances for labor productivity |
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Definition
-greater contributions to labor productivity growth
-to reap benefits: capital must increase- replace old products with new to advance |
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Term
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Definition
view that the growth of real GDP per person is temporary and that when it rises above the subsistence level, a population explosion eventually brings it back to the subsistence level
... |
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Term
| Neoclassical Growth Theory |
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Definition
the proposition that real GDP per person grows because technological change induces a level of saving and investment that make capital hour of labor grow
-growth ends if technological change stops: diminish marginal returns to both labor and capital
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Term
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Definition
holds that real GDP per person grows because of choices that people make in the pursuit of profit and that growth can persist indefinitely
-knowledge is not subject to diminishing returns |
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