ch.25 Flashcards
(21 cards)
What is the primary determinant of living standards in the long run?
Productivity (output per unit of labor)
Productivity is influenced by various factors including capital and technological knowledge.
List the factors that determine productivity.
- Physical capital per worker
- Human capital per worker
- Natural resources per worker
- Technological knowledge
How does productivity growth affect living standards?
When productivity grows rapidly, living standards increase.
What is the production function?
Y = AF(L, K, H, N)
Y is quantity of output, L is quantity of labor, K is physical capital, H is human capital, N is natural resources, and A is the level of technology.
What does constant returns to scale mean in the production function?
Changing all inputs by the same percentage causes output to change by that percentage.
What is the catch-up effect?
It is easier for a country to grow fast if it starts out relatively poor.
How can public policy boost growth and living standards?
By encouraging saving and investment to raise productivity.
What is the effect of diminishing returns on GDP growth?
GDP does not grow indefinitely; growth from investment eventually slows down.
What are two types of foreign investment?
- Foreign direct investment
- Foreign portfolio investment
How does education impact productivity?
Each year of education can significantly increase a person’s wage and has positive externalities.
What role do health and nutrition play in productivity?
Healthier workers are more productive.
What is the importance of property rights and political stability?
They protect people’s ability to exercise authority over the resources they own.
How can free trade affect productivity?
Outward-oriented policies can promote integration with the world economy.
What is the main driver of long-run increases in living standards?
Technological progress.
What are three policies that can raise living standards by increasing productivity?
- Encourage saving and investment
- Provide public education
- Control population growth
How does population growth affect living standards?
It can stretch natural resources, dilute the capital stock, and lower GDP per worker.
What is a significant challenge for developing countries regarding population growth?
Controlling population growth through government policies and promoting female literacy.
Fill in the blank: When a nation’s workers are very productive, real GDP is ______.
large
True or False: Higher saving rates always lead to higher growth in productivity.
False
What is the effect of increased savings on capital stock?
It leads to higher production and income in the next period.
What can promote technological progress?
Research and development, and patent systems.
