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Economic Growth

CFA® Exam Level 2, Economics

This lesson is part 2 of 20 in the course Economics

The total output of an economy can be represented by a national income measure called Gross Domestic Product (GDP). This section looks at the relationship between economic output, laborer productivity and the growth of an economy’s GDP. Further discussion of GDP accounting will be presented in section titled ‘Gross Domestic Product’.

Sources of Economic Growth:

  1. Aggregate Hours – the total amount of work hours performed by laborers
  2. Labor Productivity – the amount of output per worker hour (also known as Real GDP/labor hour)

Labor productivity can increase through advances in:

  • Physical capital – when firms increase the amount of equipment per laborer
  • Human capital – when individual laborers become more educated
  • Technology – new developments increase laborer productivity; productivity is measured as output per labor hour

Preconditions of Economic Growth

The existing scenarios that make it possible for aggregate hours and labor productivity to grow an economy are:

  • Specialization: when a laborer focuses on the economic activity that he/she does best; in other words, the activity in which he/she has a comparative advantage
  • Trade: institutions that facilitate trade among economic actors are:
    1. Property rights
    2. Markets
    3. Monetary exchange
Previous Lesson

‹ CFA Level 2: Economics – Introduction

Next Lesson

Changes in Productivity: The One-Third Rule ›

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In this Course

  • CFA Level 2: Economics – Introduction
  • Economic Growth
  • Changes in Productivity: The One-Third Rule
  • The Productivity Curve
  • Economic Growth Theories
  • Government Regulation, Deregulation, and Regulatory Behaviour
  • Gross Domestic Product (Measuring Economic Activity)
  • International Trade & Trade Restrictions
  • Balance of Payments
  • Foreign Exchange Rate Systems and Parity Relationships
  • Foreign Exchange Floating Rate Systems
  • Fixed Exchange Rate Systems
  • Overview of Currency Markets
  • Forward Exchange Rates
  • Interest Rate Parity
  • Purchasing Power Parity (PPP)
  • International Fisher Relation
  • Uncovered and Covered Interest Rate Parity Relationship
  • Forecasting Exchange Rates
  • CFA Level 2 Economics – Recommendations

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