Economic Growth and Productivity

• Long - Run Economic Growth, Phillips Curve, and Laffer Curve
• focus on real GDP per capita
• last 50 years real GDP grew by about 3.5 % per year
• last 50 years real GDP per capita grew by about 2.3 % per year
• Sources of Long - Run Growth
• Productivity, output per unit of input
• Labor Productivity, output per worker
• What leads to higher productivity?
• Stock of Physical Capital - buildings, machines, robots, etc.
• Human Capital - knowledge, sills, education, etc.
• Technology - technical means for producing goods and services
• Improved Resources Allocation - trade allows us to shift labor services from low - productive jobs to high productive jobs
• Economics Of Scale - reduction in per - unit cost that results from increases in size of markets and firms
• Production Possibilities Curves and LRAS :
• Economic Growth : shift in PPC outward
• Economic Growth : shift in LRAS Curve to the RIGHT
• Why Growth Rates Differ Among Countries :
• Rates of Savings
• Foreign Investment
• Education
• Infrastructure : roads, power lines, ports, and informative networks, etc.
• Research and Development
• Political Stability
• Protection of Property Rights
• Economic Freedom v.s. Excessive Government Intervention
• The Phillips Curves - Short and Long Run
• tradeoof between inflation and unemployment
• stagflation leads to shifts in the SRPC
• Aggregate Supply Shocks :
• Oil Embargo
• Major Agriculture Shortfalls
• Depreciating U.S. Dollar
• Wage Hikes
• Inflationary Expectations
• Long - Run Phillips Curve (  LRPC )
• vertical line at the natural rate of unemployment

• Supply - side Economics and the Laffer Curve
• stress that changes in the Aggregate Supply are an active force in determining the levels of inflation, employment, and economic growth
• concentrate on tax levels
• lower taxes are an incentive for business to invest in our economy
• lower taxes are an incentive for workers to work more and harder, thereby becoming more productive
• lower taxes are incentives for people to increase savings and therefore create lower interest rates for increases in business investment
• focus on marginal tax rates
• The Laffer Curve
• relationship between tax rates and tax revenues
• used to support the supply - side arguement
• Reaganomics = Supply - Side Economics
• Ideas = government could lower tax rates and actually increase tax revenues
• has been severely criticized