3production_growth.pptVIP

25 Production and Growth Table 1 The Variety of Growth Experiences Production and Growth In the United States over the past century, average income as measured by real GDP per person has grown by about 2 percent per year. Living standards, as measured by real GDP per person, vary significantly among nations. The poorest countries have average levels of income that have not been seen in the United States for many decades. ECONOMIC GROWTH AROUND THE WORLD Annual growth rates that seem small become large when compounded for many years. Compounding refers to the accumulation of a growth rate over a period of time. ECONOMIC GROWTH AROUND THE WORLD Within a country there are large changes in the standard of living over time. A country’s standard of living depends on its ability to produce goods and services. Production and Growth Productivity refers to the amount of goods and services produced for each hour of a worker’s time. A nation’s standard of living is determined by the productivity of its workers. PRODUCTIVITY: ITS ROLE AND DETERMINANTS Productivity plays a key role in determining living standards for all nations in the world. Why Productivity Is So Important Productivity refers to the amount of goods and services that a worker can produce from each hour of work. To understand the large differences in living standards across countries, we must focus on the production of goods and services. How Productivity Is Determined The inputs used to produce goods and services are called the factors of production. The factors of production directly determine productivity. How Productivity Is Determined The Factors of Production Physical capital Human capital Natural resources Technological knowledge FYI How Productivity Is Determined Physical Capital is a produced factor of production. It is an input into the production process that in the past was an output from the production process. is the stock of equipment and structures that are used to produce goods and servic