 Key statistic to track economic growth  Real GDP (adjusted for inflation) per capita (to remove effect of population changes)  Income of “typical” family normally grows in proportion to per capita income

 Long-run growth is achieved gradually  At any given annual growth rate, use Rule of 70 to determine how long it takes real GDP to double # of years to double = 70/annual growth rate

 Key to long-run growth is rising productivity  Output per worker (GDP/number of people working)  In the long-run, population growth tends to explain employment growth (real GDP per capita negates this effect)

1. Physical capital – Increases in manufactured goods used to produce other goods & services 2. Human capital – Improvement in education & knowledge 3. Technology – Progress in technical means for production – Increases Total Factor Productivity

 APF is a formula economists use to separate out the effects of the 3 factors  Diminishing returns to physical capital – Increases in amount of physical capital leads to smaller increases in productivity  Diminishing returns for tech and human capital as well  Growth accounting estimates contribution of each major factor in APF

 Ceteris paribus, countries with abundant valuable resources have higher RGDP per capita  In the real world, the other 3 factors are much more important determinants

Convergence hypothesis – Difference in real GDP per capita narrows over time because countries that start with lower GDP per capita tend to have higher growth rates South KoreaLatin AmericaSub-Saharan Africa high national savings rate lower rates of savings & investment limited growth in education & infrastructure very good educational system low education emphasis low levels of investment spending substantial tech progress political instabilityno legal safeguards for property