economic growth Flashcards
what changed economic growth rate in the past?
- agricultural advances resulted in more food and less hunger
- fewer people needed to work on farms
- the industrial revolution sparked tremendous economic growth
what does economic growth ultimately lead to?
higher standards of living and longer lives
what is the production function?
describes the methods by which inputs are transformed into outputs
input -> output (GDP)
technology is constant in the function
how do businesses transform inputs to outputs?
the production function describes the management techniques your company uses to transform inputs into outputs
better labour/ technology
what is the aggregate production function?
relates total output (GDP) to the quantity of inputs imployed
what is human capital?
skills that workers bring to a job
what is physical capital?
tools, machinery, and structures
what is the mathematical representation of the aggregate production function?
Y = f(L, H, K)
where
Y = output
L = labour
H = human capital
K = physical capital
what does the aggregate production function tell us about economic growth?
a country will production more output if
1. it employs more workers (more labour)
2. its workers become more highly skilled (increase human capital)
3. accumulates more physical capital
4. better/ more technology
how does labour and total hours worked affect economic growth?
labour input is measured as the total number of hours worked across the economy
the more labour that workers do, the more output gets produced
population boosts total GDP, but not GDP per person
what demographic factor can inhibit economic growth?
- the dependency ratio
what is the dependency ratio?
the number of people too young or too old to work per 100 people of working age
how does human capital affect economic growth?
output reflects the quantity of hours worked and the productivity of people at work
labour productivity partly depends on human capital
what is labour productivity?
the quantity of goods and services that each person producers per hour of work
how does capital accumulation affect economic growth?
the equipment you work with also determines how much you produce per hour
you are more productive when you have the right equipment