Macro - Chapter 6

Economic Growth Rate

annual percentage change of real GDP

real GDP per person

• determines standards of living

• grows only if real GDP growth is faster than population growth

What causes real GDP to increase?

1. Economy returning to full employment in an expansion phase of the business cycle

2. potential GDP increase

Rule of 70

States that the number of years it takes for the level of a variable to double is approximately 70 divided by the annual percentage growth rate of the variable.

aggregate production function

It tells us how real GDP changes as the quantity of labor changes when all other influences on production remain the same

real wage rate

money wage rate divided by price level

The effects of population growth

Increase in population, increases the supply of labor

labor productivity

quantity of GDP produced by an hour of labor