4/08/14 Unit 6

• 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, skills, education, etc.
• Technology- technical means for producing goods and services.
• Improved resource allocation- Trade allows us to shift labor services from low= productive jobs to high productive jobs.
• Economics of Scale- Reductions in per- unit costs that result from increases in the size of markets and firms.
• Production Possibilities Curve and LRAS
• Economic growth= shift in production possibilities curve outward.
• Economic growth= shift in the LRAS to the right.
• Why growth rates differ among other countres
• Rates of Savings
• Foreign Investment
• Education
• Infrastructure- Roads, power lines, ports, and information networks, etc.
• Research and development
• Political stability 
• Protection of property rights.
• Economic freedom versus excessive government intervention.
• The Phillips Curve- Short and Long Run 
• Tradeoff between inflation and unemployment.
• Stagflation leads to shifts in the SRPC.
• Aggregate supply shocks: Oil, embargo, major agriculture short falls, depreciating U.S. dollar, wage hikes, inflationary economy.
• Long- Run Phillips Curve (LRPC)
• Vertical line at the natural rate of unemployment.
• Supple- side economics and the Laffer Curve
• Stress that changes in Aggregate Supply are an active force in determining the levels of inflation, employment, and economic growth.