AP Macro Economics Jacob Dilliplane, Jonathan Pait, Aiana Semper, Taylor Schuler, Zachary Rush, Andrew Ribaudo, Cortland Ziembo

Real GDP The key statistic used to measure economic growth is real GDP per capita. Sound familiar? Real GDP per capita = real GDP/population size

Real GDP Why do we use real GDP? GDP: the total value of all final goods and services produced in a country in a given year Real GDP: GDP calculated using the prices of a given base year We use real GDP to separate changes in the quantity of goods from the effects of a rising price level In other words, are we producing more less per person than before?

Real GDP Why do we focus on real GDP per capita? We focus on real GDP per capita because we want to isolate the effect of changes in the population. We want to see the effects of long run growth on the average Joe or Jolene For example: other things equal, an increase in the population lowers the standard of living for the average person there are now more people to share a given amount of real GDP. (more mouths to feed = less to go around)

Real GDP An increase in real GDP that only matches an increase in population leaves the average standard of living unchanged. So, does that mean we need more people to die to improve our standard of living? Maybe?

Economic Growth So where are we right now in terms of economic growth? Well, lets put it in terms of how the rest of the world is doing. In 1928, the U.S. economy already produced 144% as much per person as it did in 1908. In 2008, it produced 684% as much per person as it did in 1908. Alternatively, in 1908, the U.S. economy produced only 15% as much per person as it did in 2008.

Economic Growth

China, on the other hand, had only just reached the standard of living that the U.S. enjoyed in 1908. And much of the world today is poorer than China or India. So no matter how much you think you life sucks, it could be a lot worse.

Economic Growth

Moving on. The income of the typical family normally grows more or less in proportion to per capita income. For example, a 1% increase in real GDP per capita corresponds, roughly, to a 1% increase in the income of the typical family a family at the center of the income distribution. Also known as a median household.

Growth Rates So how did the United States manage to produce nearly SEVEN times more per person in 2008 than in 1908? A little bit at a time. Long- run economic growth is normally a gradual process. Think about the tortoise and the hare. From 1908 to 2008, real GDP per capita in the U,S, increased an average of 1.9% each year.

Growth Rates

Rule of 70 Heres a little party trick when youre surrounded by politicians. The rule of 70 is a mathematical formula that tells us how long it takes real GDP per capita to double. The approximate answer is: Number of years for variable to double = 70/annual growth rate This also works for any variable that grows gradually over time.

Sources of Long-Run Growth Long run economic growth depends almost entirely on rising productivity. Sustained growth in real GDP per capita occurs only when the amount of output produced by the average worker increases steadily. The term labor productivity, or productivity for short, is used to refer to either output per worker or, in some cases, to output per hour.

Sources of Long-Run Growth In general, overall real GDP can grow because of population growth, but any large increase in real GDP per capita must be the result of increased output per worker. PRODUCTIVITY! So, how do we increase productivity?

Increased Productivity Factors 1. Physical capital: This is your buildings, tractors, and other machinery. Physical capital makes workers more productive because its easier to dig a trench using a backhoe as opposed to a shovel.

Increased Productivity Factors 2. Human capital: That backhoe is no use if no one knows how to operate it. Human capital refers to the improvements in labor created by the education and knowledge of the workforce.

Increased Productivity Factors 3. Technology: You knew this one was coming. Its probably the most important factor when it comes to increasing productivity. Technology is defined broadly as the technical means for the production of goods and services. Its important to realize that economically important technological progress need not be flashy or rely on cutting edge science. Historians have noted that past economic growth has been driven not only by major inventions like the railroad or semi conductor chip, but also by thousands of modest inventions like the flat-bottomed paper bag (patented in 1870) which made packing groceries and other goods much easier.

Putting It All Together So, long-run economic growth happens gradually over time. We measure it using real GDP per capita. Think of it as the amount of a countrys GDP one person produces adjusted for inflation. Ideally, to support positive growth in the economy, population growth, employment, and GDP per capita should increase at roughly similar rates. To make sure that happens, we need productivity.

The most common measure to track long-run economic growth over time and between nations is what? a. nominal GDP per capita b. wealth distribution factor c. real GDP per capita d. real GDP e. total population

Short-run recovery is a movement from a point inside the PPC to the limits of the PPC. Long run economic growth is a shift of what? a. the entire PPC curve outward b. the entire PPC curve inward c. the entire PPC curve leftward d. the entire PPC curve rightward e. the entire PPC curve downward

Physical capital, human capital, and technology cause an increase in _______________. a. inflation b. productivity c. unemployment d. aggregate demand e. aggregate supply

How is real GDP per capita calculated? a. GDP multiplied by total population b. GDP divided by total population c. real GDP multiplied by total population d. real GDP divided by the total population e. real GDP plus the total population

A(n) _______ in the _________ lowers the standard of living for the average person. a. increase; population b. decrease; population c. increase; amount of real GDP d. decrease; amount of real GDP e. increase; amount of GDP

If a country has a population of 2,000 and its real GDP is $8,000,000, then its GDP per capita is: a. $400,000 b. $40,000 c. $4,000 d. $400 e. cannot be determined by the information given

What is the real GDP of a country whose population is 10,000 and its real GDP per capita is $1,200, then its GDP per capita is: a. $12,000,000 b. $1,200,000 c. $12,000 d. $1,200 e. cannot be determined by the information given

What is the mathematical formula used to determine how long it would take for a countrys real GDP per capita to double? a. 70 divided by the annual growth rate b. 70 divided by the total population c. 70 multiplied by the annual growth rate d. 70 multiplied by the total population e. none of the above

How many years would it take for potential output to double when there is a 5% annual increase in the potential level of real GDP? a. 9 b. 7 c. 14 d. 28 e. 35

Cubas real GDP per capita grew at 2% last year, how many years should it take to double? a. 35 b. 70 c. 2 d. 4 e. 20

Which of the following is an example of human capital? a. shovel b. 5 years of job experience c. college degree d. b and c e. none of the above

Which of the following is an example of physical capital? a. knowledge of how to use a hammer b. leadership skills c. forklift d. a and b e. none of the above

What are the three main reasons why the average U.S. worker today produces more than their century old counterpart? a. physical capital, strength capital, and technological process b. physical capital, human capital, and technological process c. work ethic, strength capital, and technological process d. human capital, strength capital, and work ethic e. physical capital, strength capital, and robots

Sustained growth in ______________ occurs when the amount of output produced by the average worker _________________. a. GDP; decreases b. GDP; increases c. real GDP per capita; stays the same d. real GDP per capita; increases steadily e. real GDP per capita; decreases steadily

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AP Macro Economics Jacob Dilliplane, Jonathan Pait, Aiana Semper, Taylor Schuler, Zachary Rush, Andrew Ribaudo, Cortland Ziembo