Unit VI. Economic Growth and Productivity

image from cartoonstock.com
image from cartoonstock.com


Long run economic growth occurs when a country can produce more of a good without having to give up another good, or when a country can produce more overall. On the AS/AD graph, long run economic growth is demonstrated by a rightward shift of the LRAS (Long run aggregate supply) curve. On the PPF curve, you can see how oppurtunity cost fits in. Without growth, this country would have to give up airplanes to produce more automobiles, or vice versa. WITH growth, however, the country can produce more of both airplanes and automobiles

image from mises.org
image from mises.org
image from bized.co.uk
image from bized.co.uk


Long-Run and Short-Run Concerns: Growth, Productivity, Unemployment, and Inflation
Long-Run Growth

A. Investment in Human Capital

-Human capital is defined as the knowledge and skills a laborer possesses

-Investing in human capital encourages growth and productivity because when laborers are more educated and have better skills, firms can produce goods/services more efficiently
image from valetudocafe.wordpress.com
image from valetudocafe.wordpress.com

photo from sodahead.com, courtesy of Z.Money
photo from sodahead.com, courtesy of Z.Money

image from hcdexperts.com
image from hcdexperts.com


B. Investment in Physical Capital


-Physical capital is defined as any manufactured unit that is used in production; such as machinery

-Investing in physical capital encourages growth because the investment improves the machinery that is used to produce a specific good or service, thus making production more efficient
image from maxprohaldia.com
image from maxprohaldia.com



C. Research and Development, and Technological Progress

D. Growth Policy

Fiscal Policies are government policies dealing with the budget. They usually deal with taxation, borrowing, or government spending
Monetary Policies are federal reserve policies dealing with the money supply. They usually deal with buying/selling bonds, adjusting the discount rate, or adjusting the required reserve ratio
*Policies are either expansionary or contractionary. Meaning, for example, if the Fed wanted to lower interest rates and combat unemployment, they would activate an expansionary policy.
image from highered.mcgraw-hill.com
image from highered.mcgraw-hill.com

-Graph A represents an expansionary monetary policy. The money supply has shifted rightward, lowering the equilibrium interest rate and increasing the real domestic output
-Graph B represents a contractionary monetary policy. The money supply has shifted leftward, raising the equilibrium interest rate and decreasing the real domestic output
-Graph C represents an expansionary fiscal policy
-Graph D represents a contractionary fiscal policy
Fiscal Policy Reffonomics


Helpful videos
Unit 6, Part 1
Unit 6, Part 2
*gewalker72's youtube channel is helpful!


This website does not discuss unit 6 only, but it has alot of seemingly helpful information on it :)
AP Macroeconomics



Indian Valley High School
Kerstehn
Last Updated: 5/31/2011
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