economic growth Flashcards

1
Q

what changed economic growth rate in the past?

A
  • agricultural advances resulted in more food and less hunger
  • fewer people needed to work on farms
  • the industrial revolution sparked tremendous economic growth
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2
Q

what does economic growth ultimately lead to?

A

higher standards of living and longer lives

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3
Q

what is the production function?

A

describes the methods by which inputs are transformed into outputs

input -> output (GDP)

technology is constant in the function

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4
Q

how do businesses transform inputs to outputs?

A

the production function describes the management techniques your company uses to transform inputs into outputs

better labour/ technology

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5
Q

what is the aggregate production function?

A

relates total output (GDP) to the quantity of inputs imployed

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6
Q

what is human capital?

A

skills that workers bring to a job

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7
Q

what is physical capital?

A

tools, machinery, and structures

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8
Q

what is the mathematical representation of the aggregate production function?

A

Y = f(L, H, K)

where
Y = output
L = labour
H = human capital
K = physical capital

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9
Q

what does the aggregate production function tell us about economic growth?

A

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

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10
Q

how does labour and total hours worked affect economic growth?

A

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

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11
Q

what demographic factor can inhibit economic growth?

A
  • the dependency ratio
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12
Q

what is the dependency ratio?

A

the number of people too young or too old to work per 100 people of working age

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13
Q

how does human capital affect economic growth?

A

output reflects the quantity of hours worked and the productivity of people at work

labour productivity partly depends on human capital

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14
Q

what is labour productivity?

A

the quantity of goods and services that each person producers per hour of work

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15
Q

how does capital accumulation affect economic growth?

A

the equipment you work with also determines how much you produce per hour

you are more productive when you have the right equipment

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16
Q

what is capital stock?

A

the total quantity of physical capital used in the production of goods and services

17
Q

what are the characteristics of capital?

A
  • physical capital is a complement to labour
  • investment depends on the savings rate
  • foreign investment builds the capital stock
18
Q

how does technological progress affect economic growth?

A

makes it possible to produce more from given resources

is embodied by computers

19
Q

what are the insights that the production function gives into the process of economic growth?

A

1) constant returns to scale
2) diminishing returns to capital
3) poor countries can enjoy catch-up growth

20
Q

what does constant returns to scale mean?

A

refers to the situation when all inputs are increased by some proportion and output increases by the same proportion

21
Q

what is the replication argument?

A

states that to double output in your business you can replicate everything you are already doing

22
Q

what is the law of diminishing returns?

A

when one input is held constant, increases in the other inputs will, at some point, begin to yield smaller and smaller increases in output

23
Q

what does diminishing return imply for poor countries?

A

implies poor countries can catch-up to wealthier ones

investment in capital will have a large return for a relatively poor country

24
Q

what is the solow model?

A

the capital stock will grow as long as investment outpaces depreciation

capital per worker (K/L) will eventually stop growing

capital accumulation can’t sustain long-term growth

25
Q

where does technological progress come from?

A

driven by how quickly new ideas are created and how many resources are devoted to generating new ideas

26
Q

why can idea-driven economic growth be sustained?

A
  1. ideas can be shared freely
  2. ideas do not depreciate with use
  3. ideas may promote other ideas
27
Q

what is the role of incentives?

A

institutions can provide incentives for people to invent new ideas and invest in human or physical capital

28
Q

what are some examples of incentives?

A
  • property rights
  • government stability
  • efficiency of regulation
  • policy to encourage innovation
29
Q

what are property rights? how do they promote economic growth?

A

property rights grant control over a tangible or intangible resource

without property rights, there is no incentive to create wealth

30
Q

how does government stability promote economic growth?

A

a stable government makes economic growth more likely

corruption and political instability discourage investment and innovation

31
Q

how does efficient regulation promote economic growth?

A

bureaucratic obstacles, including excessive regulatory oversight, can hinder economic growth