Flashcards in Ch. 7 - Production + Growth Deck (29):
Two Facts about income and growth around the world...
Fact 1: vast differences in living standards around the world
Fact 2: great variation in growth rates across countries
B/c of great variance of growth b/w countries...
not necessarily poor forever (Signapore)
richer can be over-taken by faster growing countries
avergae Q of G+S per worker per hour
real GDP = Q of output produced
quantity of labour
when workers are productive real GDP is high and so are incomes (t/f)
What determines productivity + growth rates? (4 things)
1. level of technology
2. physical capital per worker
3. human capital per worker
4. natural resources per worker
Physical Capital is...
-stock of equipment + structures for G+S production (depicted as K)
Human Capital is...
-knowledge/skills per worker from education, training , experience, etc. (depicted as H)
Natural Resources are...
inputs into production from nature; some countries richer than others (depicted as N)
Technological Knowledge is...
societal understanding of best way to produce G+S (eg. assembly lines) (depicted A)
Production Function for productivity + factors is... (formula)
y = AF (L , K , H, N)
productivity = technology x inputs to produce output (labour, physical capital, human capital, natural resources)
incr. K can boost production (t/f). it is called...
true, called investment.
incr investment is a tradeoff b/w _______ + _____ consumption. B/c more capital = fewer consumption goods (due to ___)
current; future; scarcity
Diminishing returns to capital is...
(low K gains is _____ country; high K gains is_____ country)
as K rises, production and standard of living rise, but incr. is much higher when little amount of K to begin with, otherwise it is very minimal.
Catch Up Effect
-lower countries having faster growth rates b/c of minimal K (physical capital) invested already. What is invested helps significantly.
To raise K/L gov't can encourage... (2)
1. foreign direct investment (owned + operated by foreign)
2. foreign portfolio investment (owned foreign, operated by local)
-returns flow back to foreign investor.
-best when a poor country can't save enough to "jump start"
To increase productivity.... (2)
1. Human Investment
2. Respect for Property Rights
human Investment incr productivity b/c...
-education makes workers more effective
-health: healthy workers are more productive
Respect for property rights helps productivity b/c...
-there is less investment w/ political instability, corrupt police, or ineffective courts (why invest if its not safe?)
Free trade types: (2)
-which more successful?
1. inward oriented policies (avoiding foreign investment)
-generally a fail
2. outward oriented policies (promote integration into world market)
Technological progress is the main reason living standards rise over time (t/f)
-knowledge is a public good (shared freely)
How do gov'ts encourage technological progress?
patent laws, tax incentives, research grants, etc
Population Growth Effects on Economy (3)
1. Stretch Natural Resources
2. Diluting the Capital Stock
3. Promote Technology Progress
Pop Growth Stretches Natural Resources is...
a Malthus argument; did not account for technological progress and production growth so not as much of a factor
Pop growth Dilutes Capital Stock b/c...
bigger population = higher labour = lower K/L (capital/worker)
-human capital effects: more kids = larger education system strain
Pop. Growth Promotes Technological Progress by...
more ppl = more discoveries (more scientists, engineers, inventors, etc)
-scarcer resources = higher prices = larger incentive to find alternatives