Economic Growth: Key Concepts, Models, and Policies in Macroeconomics

What is economic growth?

A sustained increase in real GDP per capita over time.

How is output per capita calculated?

Output divided by population; for example, if real GDP is $100 million and the population is 2 million, real GDP per capita is $50 per person.

What does productivity refer to?

The amount of output produced per unit of labor.

What is human capital?

Improvements in education, knowledge, and wealth that make each unit of labor more productive.

What are supply-side policies?

Government policies that promote rightward shifts of aggregate supply, such as increasing labor force participation and incentives to save and invest.

Does an increase in real GDP always indicate economic growth?

No, an increase in real GDP does not necessarily mean economic growth; it could be due to temporary factors.

What factors contribute to economic growth?

The stock of capital per worker, the amount and quality of labor, and the level of technology.

How does the stock of capital per worker affect production?

An economy with more physical capital can produce more than one with less physical capital.

What role does human capital play in productivity?

Improvements in human capital, such as education and health, enhance the productivity of labor.

What is the significance of technology in production?

Improvements in technology increase productivity by enhancing the methods of combining labor, capital, and natural resources.

How can government policies impact economic growth?

Policies can encourage or discourage growth through infrastructure investment, productivity enhancement, and capital accumulation.

What is the production possibilities curve (PPC)?

A model that illustrates the maximum combination of output of two goods that an economy can produce.

What does a rightward shift in the PPC indicate?

An increase in the capacity to produce, signifying economic growth.

What does the long-run aggregate supply curve (LRAS) represent?

The full employment rate of output in an economy.

What happens to the LRAS when full employment output increases?

The LRAS curve shifts to the right.

What is a common misconception about economic growth?

That it is merely a temporary fluctuation in output or the use of previously underutilized resources.

What impact does an increase in the supply of loanable funds have on the PPC?

It can lead to an outward shift of the PPC, indicating increased production capacity.

What is the effect of a decrease in the capital stock on the LRAS?

It would shift the LRAS to the left, indicating a decrease in the economy's potential output.