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3
The Fundamentals of Economic Growth
53
4
Explaining Economic Growth in the Long Run
80
5
Labour Markets and Unemployment
105
6
Money, Prices, and Exchange Rates in the Long Run
137 
PART II
The Macroeconomy inthe Long Run
Part II studies the long run. The long run is what economistsmean when they talk about the behaviour of an economy over aperiod of decades, rather than over short time spans of quartersor a few years. It describes attainable and sustainable aspectsof the national economy, and goes far beyond the short-termperspective of the business cycle fluctuations described inChapter 1. Most important, it represents the basis of sustainableevolution of standards of living.We begin with economic growth, the most fundamental of alllong-run macroeconomic phenomena. Economic growth is therate at which the real output of a nation or a region increasesover time. As the ultimate determinant of the poverty or wealthof nations, sustained economic growth is a central aspect of thelong run. Because this is such an important topic, two chaptersare dedicated to studying it.Next, we look at the labour market, one of the most importantmarkets in modern economies. In the labour market, householdstrade time at work for the ability to purchase goods and servicesin the goods market. We will see how labour is allocated: whereit comes from, who demands it, and how to think aboutunemployment.
© Oxdord University Press 2009. Michael Burda and Charles Wyplosz. Macroeconomics A European Text 5e
 
PART II
THE MACROECONOMY IN THE LONG RUN
52
The last chapter in Part II introduces the long-run role of monetary and financialvariables: money, interest rates, and the nominal exchange rate, which are generallydenoted in nominal terms—in pounds or euros or dollars. Nominal variables determinethe real terms of exchange between goods within a country, between countries, or overtime—the command of resources represented by one type of goods and services overothers.
© Oxdord University Press 2009. Michael Burda and Charles Wyplosz. Macroeconomics A European Text 5e
 
The Fundamentals of Economic Growth
3.1
Overview
54
3.2
Thinking about Economic Growth: Facts and Stylized Facts
54
3.2.1The Economic Growth Phenomenon
54
3.2.2The Sources of Growth: The Aggregate Production Function
55
3.2.3Kaldor’s Five Stylized Facts of Economic Growth
59
3.2.4The Steady State
60
3.3
Capital Accumulation and Economic Growth
61
3.3.1Savings, Investment, and Capital Accumulation
61
3.3.2Capital Accumulation and Depreciation
61
3.3.3Characterizing the Steady State
62
3.3.4The Role of Savings for Growth
63
3.3.5The Golden Rule
65
3.4
Population Growth and Economic Growth
68
3.5
Technological Progress and Economic Growth
71
3.6
Growth Accounting
73
3.6.1Solow’s Decomposition
73
3.6.2Capital Accumulation
75
3.6.3Employment Growth
75
3.6.4The Contribution of Technological Change
76
Summary
77 
3
© Oxdord University Press 2009. Michael Burda and Charles Wyplosz. Macroeconomics A European Text 5e

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