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All these institutions act to direct the resources of households who want to
save some of their income into the hands of households and firms who want
to borrow.
The interest rate is determined by the supply and demand for loanable
funds.
The supply of loanable funds comes from households who want to save
some of their income.
The demand for loanable funds comes from households and firms who want
to borrow for investment.
Lecture 16
Lecture Outline
Within a country there are large changes in the standard of living over time.
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.
Productivity refers to the amount of goods and services produced for each
hour of a workers time.
The poorest countries have average levels of income that have not been seen
in the United States for many decades.
Annual growth rates that seem small become large when compounded for
many years.
Productivity plays a key role in determining living standards for all nations in
the world.
Productivity refers to the amount of goods and services that a worker can
produce from each hour of work.
The inputs used to produce goods and services are called the factors of
production.
Physical capital
2.
Human capital
3.
Natural resources
4.
Technological knowledge
Technological Knowledge
societys understanding of the best ways to produce goods and
services.
Human capital refers to the resources expended transmitting this
understanding to the labor force.
Summary
The average income of the worlds richest countries is more than ten times
that in the worlds poorest countries.
Summary