Chapter 10 Flashcards
(9 cards)
That real GDP per capita can only increase if nominal GDP increases more than a nation’s inflation
AND the nation’s population.
Real GDP goes up IF
Nominal GDP > Nation’s Inflation & Nation’s Pop.
The two main reasons why real GDP per capita can increase over time (productivity and share of
population working increases) and that labor productivity is most important for our future
Real GDP per capita= Share of the population working x avg. productivity of those workers
The 6 components/determinants of labor productivity: Technology, Capital (goods), Human
capital (skills and education), Land (natural resources), Entrepreneurship, and Legal & Political
stability – and that Technology and more Capital (capital goods) are seen as the most important
- Tech:
direct: U.S. military; NASA
indirect: R&D grants; NSF; universities - Physical Capital:
direct: infrastructure indirect: tax incentives - Human skills/education
direct: K-12; state universities indirect: All student loans - Land/Natural resources
- use or “not use” public land - Entrepreneurship
-taxes: too much/not enough?
-startup assistance - Legal & political stability
providing stability; keeps the “poor” from catching up
How governments can facilitate or obstruct increases in labor productivity through each of the
six components listed above
- Tech:
direct: U.S. military; NASA
indirect: R&D grants; NSF; universities - Physical Capital:
direct: infrastructure indirect: tax incentives - Human skills/education
direct: K-12; state universities indirect: All student loans - Land/Natural resources
- use or “not use” public land - Entrepreneurship
-taxes: too much/not enough?
-startup assistance - Legal & political stability
providing stability; keeps the “poor” from catching up
The main cost/drawback of economic growth to an economy
-pollution
-inequality
-resource depletion
-growth comes at the expense of current consumption
How the rule of 70 and how it can be used
How long will it take for something to double=
70/annual growth rate (%)
How to compute compounded interest using the formula: Future value = initial amount (1 +
interest rate in decimals) ^ (number of years) and understand the importance of a high rate and
large number of years.
Future Value = Initial Amount * (1 + Interest Rate)^Number of Years
A higher interest rate means more interest is added to the principal each year, leading to exponential growth.
The longer the money is invested, the more time it has to compound.
Real GDP per capita
nominal GDP-inflation rate- population growth
convergence theory
