Real GDP Per Capita

Key statistic used to measure economic growth and standard of living real GDP per capita
- Real GDP divided by the population
- Not a policy goal itself, but a useful summary that measures a nation's economic progress
In 2008, the median household income in the United States was ~$50,000
In 1908, it was about 15% of that, or ~$8,000 in today's dollars
In many countries today, the standard of living is less than it was in the United States over 100 years ago!
Why is that?

Long Run Economic Growth

Gradual progress of the real GDP per capita in the US increased by 1.9% every year
Sources of Growth
- Physical Capital
  - Building and machines today make the average worker much more productive
- Human Capital
  - Improvement in labor created by education and knowledge in the workforce
- Technology
  - Technical means for the production of goods and services

PPF Graph
- Economic growth results in an outward shift of the production possibilities curve.
In Parkland, point A (y-axis) represents all investment goods and point D represents all consumer goods (x-axis) with B and C in between
LRAS Curve
- The growth in potential output over time can be shown as a rightward shift of the long-run aggregate supply curve
SRAS curve
- Short-Run to Long-Run: Y₁ > Y_P
- Initial equilibrium is E₁. Eventually, low unemployment will cause nominal wages to rise and leads to a leftward shift of the SRAS curve, so the new equilibrium is at E₂
$C:\\F359C6C5\\9BC69D0C-DC4A-464F-8EBF-7C4DE0F84205\_files\\image104.png$
Short-Run to Long-Run: Y₁ < Y_P
Initial equilibrium is E₁. Eventually, high unemployment will cause nominal wages to fall and leads to a rightward shift of the SRAS curve, so the new equilibrium is at E₂