MacroEcon 2020 Data Attached

Panel A Copyright © 2017 Pearson Education, Inc. All rights reserved. 10 -5 Figure 10 - 1 U.S. GDP since 1890. U.S. GDP per person since 1890 (cont’d) Panel B shows that the increase in output is not simply the result of the large increase in U.S. population from 63 million to more than 300 million over this period. Output per person has risen by a factor of 9.

Panel B Copyright © 2017 Pearson Education, Inc. All rights reserved. 10 -6 10 - 1 Measuring the Standard of Living • We care about growth because we care about the standard of living. • When comparing the standard of living across countries, we use purchasing power parity (PPP) numbers which adjust the numbers for the purchasing power of different countries. • The right measure on the production side is output per worker or output per hour worked. Copyright © 2017 Pearson Education, Inc. All rights reserved. 10 -7 10 - 2 Growth in Rich Countries since 1950 Table 10 -1 The Evolution of Output per Person in Four Rich Countries since 1950 • There has been a large increase in output per person due in part to the force of compounding . • There has been a convergence of output per person across countries. Copyright © 2017 Pearson Education, Inc. All rights reserved. 10 -8 FOCUS: Does Money Lead to Happiness?

Figure 1 Life Satisfaction and Income per Person • Easterlin paradox: Once basic needs are satisfied, higher income per person does not increase happiness, and the level of income relative to others, rather than the absolute level of income, matters Copyright © 2017 Pearson Education, Inc. All rights reserved. 10 -9 10 - 2 Growth in Rich Countries since 1950 Figure 10 -2 Growth Rate of GDP Per Person since 1950 versus GDP per Person in 1950; OECD Countries Countries with lower levels of output per person in 1950 have typically grown faster. Copyright © 2017 Pearson Education, Inc. All rights reserved. 10 -10 10 - 3 A Broader Look across Time and Space • From the end of the Roman Empire to roughly year 1500, Europe was in a Malthusian trap or Malthusian era with stagnation of output per person because most workers were in agriculture with little technological progress. • After 1500, growth of output per person turned positive but still small. • Between 1820 and 1950, U.S. growth was still 1.5% per year. • Sustained growth was high since 1950. Copyright © 2017 Pearson Education, Inc. All rights reserved. 10 -11 10 - 3 A Broader Look across Time and Space Figure 10 -3 Growth Rate of GDP per Person since 1960, versus GDP Per Person in 1960 (2005 dollars); 85 Countries There is no clear relation between the growth rate of output since 1960 and the level of output per person in 1960. Copyright © 2017 Pearson Education, Inc. All rights reserved. 10 -12 10 - 3 A Broader Look across Time and Space • For the OECD countries, there is clear evidence of convergence. • Convergence is also visible for many Asian countries, especially for those with high growth rates, called the four tigers — Singapore, Taiwan, Hong Kong, and South Korea. • Most African countries were very poor in 1960, and some of them had negative growth of output per person between 1960 and 2011 due in part to internal or external conflicts. Copyright © 2017 Pearson Education, Inc. All rights reserved. 10 -13 10 - 4 Thinking About Growth: A Primer • Aggregate production function F : where Y is output, K is capital, and N is labor. • The function F depends on the state of technology . • Constant returns to scale : • Decreasing returns to capital: Increases in capital lead to smaller and smaller increases in output. • Decreasing returns to labor: Increases in labor lead to smaller and smaller increases in output. Copyright © 2017 Pearson Education, Inc. All rights reserved. 10 -14 10 - 4 Thinking About Growth: A Primer • The production function and constant returns to scale imply a simple relation between output per worker (Y/N ) and capital per worker ( K/N ): • Increases in capital per worker: Movements along the production function. • Improvements in the state of technology: Shifts (up) of the production function. • Growth comes from capital accumulation and technological progress . Copyright © 2017 Pearson Education, Inc. All rights reserved. 10 -15 10 - 4 Thinking About Growth: A Primer Figure 10 -4 Output and Capital per Worker Decreasing returns to capital:

Increases in capital per worker lead to smaller and smaller increases in output per worker. Copyright © 2017 Pearson Education, Inc. All rights reserved. 10 -16 10 - 4 Thinking About Growth: A Primer Figure 10 -5 The Effects of an Improvement in the State of Technology An improvement in technology shifts the production function up, leading to an increase in output per worker for a given level of capital per worker.