ECON 202 Lecture Notes - Lecture 4: Potential Output, Real Interest Rate, Stabilization Policy
30 Mar 2017
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Document Summary
2 crucial tasks for policy makers: growth policy. Sustain a high long-run growth rate of potential gdp, but not necessarily the highest possible growth rate: stabilization policy. Keeping actual gdp reasonably close to potential gdp in the short run: avoid high unemployment and high inflation. Growth rate of hours of work + Focus of growth policy is on improving productivity. Rate at which economy builds up its stock of capital. Rate at which workforce quality (human capital) improves. Advantages of more capital and newer capital. If capital stock rises, production function shifts up, given labor level and technology stay the same. Key factor in explaining productivity differences between rich and poor countries. Given same capital and labor force, technology advances will also shift up the production function. Better educated or trained workers are more productive. Amount of skill embodied in the workforce. Measured by the amount of education and training.
