Chapter 7 Flashcards
________=Output/population
real GDP per capita
or
Q/population
Measure for the standard of living
List reasons for differences in standard of living related to production
Democracy
Education… Knowledge
Trade agreements
Infrastructure and technology
INSTITUTIONAL ARRANGEMENTS- arrangements that alter human behaviour
How do institutional arrangements benefit a country?
How would that be done?
They attract foreign investment, reduce risk, and increase risk-taking
Would look like this:
A legal system that protects property, patent/copyright, intellectual property, and contract enforcement
Is transparent, predictable, and enforceable
_______= real GDP/ labour employed
Productivity
Q/L
What are the determinants of productivity?
The quality/efficiency of the factors of production
____________: a doubling of inputs leads to a doubling of outputs
Constant returns to scale
What does this ratio represent?
K/L
Capital Labour Ratio
High I leads to what?
An increase in productivity that leads to high economic growth
vice versa
policy that increases growth increases I
I= investment
Foreign ______ investment
-takes the form of purchases of assets - new facilities/factories
-merger and acquisitions - foreigners buying existing facilities
Foreign direct investment
Foreign _______ investment
- Foreigners buying stocks and bonds - Government of Canada bonds only
Foreign portfolio investment
What is the production function?
Y = f(K, L, T)
Where:
Y is the output of goods and services
K is the amount of physical capital used in production
L is the quantity of labor employed in production
T is the level of technology used in production
What does diminishing returns mean? Apply it to a nation investing more in producing physical capital for future production?
For each added input less output is achieved each time. If more physical capital keeps being produced the benefits to production over time get smaller and smaller, there is only a certain number of workers that can run all the equipment.
What is the catch up effect?
The effect occurs when a poor nation since significant growth in their production capabilities from small investments
