In this chapter you will see how economic growth differs around the world, consider why productivity is the key determinant of a country’s standard of living, analyze the factors that determine a country’s a country’s, examine how a country’s policies influence its productivity growth. | 9 THE REAL ECONOMY IN THE LONG RUN 25 Production and Growth Production and Growth A country’s standard of living depends on its ability to produce goods and services. Production and Growth Within a country there are large changes in the standard of living over time. 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. 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. Table 1 The Variety of Growth Experiences Copyright©2004 South-Western ECONOMIC GROWTH AROUND THE WORLD Living standards, as measured by real GDP per person, vary significantly among nations. ECONOMIC GROWTH AROUND THE WORLD 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 . | 9 THE REAL ECONOMY IN THE LONG RUN 25 Production and Growth Production and Growth A country’s standard of living depends on its ability to produce goods and services. Production and Growth Within a country there are large changes in the standard of living over time. 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. 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. Table 1 The Variety of Growth Experiences Copyright©2004 South-Western ECONOMIC GROWTH AROUND THE WORLD Living standards, as measured by real GDP per person, vary significantly among nations. ECONOMIC GROWTH AROUND THE WORLD 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. 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. Why Productivity Is So Important 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 How Productivity Is Determined Physical Capital is a produced factor of production. It is an input into .
