Chapter 7: Productivity

Question 1

The typical citizen of Pakistan in 2014 had real income nearly equal to that of the average citizen of the United Kingdom in

Answer 1

1870

Question 2

In what ways are we richer now than John D. Rockefeller.

Answer 2

He did not have modern conveniences such as internet, e-mail, air conditioning, cars, planes, or telephones, antibiotics.

Question 3

What does long-run inflation rate ignore about standard-of-living growth?

Answer 3

It ignores technological advances which make people much better off.

Question 4

What is the approximate growth rate of real GDP per person in Canada?

Answer 4

1.99%

Question 5

Brazil has a higher or lower real GDP per person growth per year than Canada?

Answer 5

Higher

Question 6

The United States, in the long run, has had a higher or lower GDP per person growth than Canada

Answer 6

Lower

Question 7

The real GDP per person in the US is higher or lower than Canada?

Answer 7

Higher

Question 8

A country’s primary standard of living depends on what?

Answer 8

its productivity

Question 9

What is productivity defined as?

Answer 9

The quantity of goods and services that a worker can produce for each hour of work

Question 10

What are the primary determinants of productivity?

Answer 10

1) Physical capital
2) Human capital
3) Natural resources
4) Technological knowledge

Question 11

What is physical capital?

Answer 11

The stock of equipment and structures that are used to produce goods and services.

Question 12

What is an example of physical capital?

Answer 12

Specialized tools like saws, lathes, drills- which are better than basic hand tools

Question 13

How does capital fit into capital production?

Answer 13

It is a produced factor of production, which means that it was an output from an earlier process.

Question 14

What is human capital?

Answer 14

The knowledge and skills that workers acquire through education, training, and experience.

Question 15

How is human capital like physical capital?

Answer 15

Human capital is also a produced factor of production, from schools, teachers, libraries, and time– this capital will be used in future production

Question 16

What is the precise definition of natural resources?

Answer 16

Inputs into the production of goods and services tat are provided by nature, such as land, rivers, and mineral deposits.

Question 17

What is a renewable resource?

Answer 17

One that can be re-produced and have a theoretically unlimited long-term supply

Question 18

Are natural resources necessary for a highly productive economy?

Answer 18

No. Japan, for example, found success in making technology from natural resource imports

Question 19

True or false: Canada’s economic success was greatly aided by its large supply of natural resources.

Answer 19

True

Question 20

What is technological knowledge?

Answer 20

Society’s understanding of the best ways to produce goods and services

Question 21

Is technological knowledge diffused right away?

Answer 21

not necessarily. Some technological knowledge is proprietary for some duration of time with a patent; other times, it is a concept that can be replicated by everyone.

Question 22

What is the production function identity for productivity?

Answer 22

Y = A F(L, K, H, N)
Y: Quantity of output
A: available production technology
L: Quantity of labor
K: Quantity of physical capital
H: Quantity of human capital
N: Quantity of natural resources.

Question 23

Many production functions have a property called ______ ______ to ____

Answer 23

Constant returns to scale

Question 24

What does constant returns to scale mean?

Answer 24

A doubling of inputs causes the amount of output to double as well.

Question 25

How does technological knowledge differ from human capital?

Answer 25

Technological knowledge s society's knowledge about the world; Human capital refers to resources expended transmitting this knowledge to the labour force.

Question 26

How does we offset the problems of decreasing non-renewable resources for productivity?

Answer 26

technological advances change the resources required or the amounts of resources used. Fuel efficiency, alternative fuels, new technologies used.

Question 27

The prices of natural resources indicate what for their long-term supply?

Answer 27

Adjusted for inflation prices are falling, which means that we are doing a better all job at conserving them! Therefore, market prices give no reason to believe that their lack is a limit to growth.

Question 28

What does society have to sacrifice to accumulate capital for future consumption?

Answer 28

Short-term consumption of goods and services.

Question 29

How does capital-accumulation affect economic growth?

Answer 29

More resources are devoted to long-term increases and so the economy can produce more in the long term.

Question 30

What are diminishing returns in productivity?

Answer 30

The property whereby the benefit fro an extra unit of an input declines as the quantity of the input increases

Question 31

When workers already have a large quantity of capital to use in producing goods and services, an additional unit of capital increase their productivity_____

Answer 31

only slightly

Question 32

When the economy has a low level of capital, an extra unit of capital leads to a ____

Answer 32

large increase in output

Question 33

In. the long run, the higher saving rate from capital accumulation leads to a higher rate of _____ and ______, but not to higher ______ in these variables

Answer 33

productivity; income; growth.

Question 34

What is the catch-up effect?

Answer 34

The property whereby countries that start poor tend to grow more rapidly than countries that start off rich.

Question 35

According to studies of international data on economic growth, increasing the saving rate can lead to substantially higher growth for a period of ______

Answer 35

several decades

Question 36

Which country experienced a faster growth from their similar share of GDP invested: Canada or South Korea? Why?

Answer 36

South Korea, because they had a very low prior level of capital, which allowed the initial accumulation to provide a greater benefit.

Question 37

Which country has a higher GDP per person: South Korea or Canada?

Answer 37

Canada.

Question 38

Apart from saving by domestic residents, what is the other way for a country to invest new capital?

Answer 38

investment by foreigners

Question 39

What is a capital investment that is owned and operated by a foreign entity?

Answer 39

Foreign direct investment

Question 40

Apart from building and operating a factory itself, what is another way of foreign direct investment?

Answer 40

Buying shares in other countries' corporations

Question 41

What is foreign portfolio investment?

Answer 41

An investment that is financed with foreign money but operated by domestic residents.

Question 42

When investing in foreign countntries' domestic residents' _____ are used to finance foreign residents' _______

Answer 42

savings; investment

Question 43

Why do foreigners invest in a country?

Answer 43

They expect to make a profit.

Question 44

Does investment from abroad raise the income of domestic residents as much as domestic investment?

Answer 44

No: some of the benefits flow back to foreign owners, but it still injects capital into the domestic economy.

Question 45

Apart from direct financial investment, what other benefit of receiving foreign investment?

Answer 45

Learning state-of-the-art technologies used in richer countries.

Question 46

Which organizations were built after WW2 to make loans to poorer countries to invest in capital?

Answer 46

World Bank and IMF.

Question 47

Investment in human capital is at least as important as investment in _____ for a country's long run economic success.

Answer 47

physical capital.

Question 48

In Canada, each year of schooling has historically raised a person's wage on average by about _____ percent

Answer 48

10%

Question 49

The gap between the wages of the educated is higher in _______. Why?

Answer 49

less developed countries. The opportunity cost in lost wages is very high, and critical for supporting family.

Question 50

How can human capital investment impact society beyond the individual?

Answer 50

It van generate new ideas which enter society's pool of knowledge; makes everyone better off.

Question 51

How do governments invest in human capital?

Answer 51

large subsidies to public education

Question 52

what is brain drain?

Answer 52

The emigration of highly-educated workers to rich countries, where they can enjoy a higher standard of living.

Question 53

What positive externality does brain drain counteract?

Answer 53

The benefits of public education.

Question 54

How does Canada suffer brain drain? What should be done about it?

Answer 54

Highly skilled workers go to the higher-paying jobs in the U.S.; Some say Canada should cut taxes to allow higher after-tax incomes; others stress social programs to make it better to live here; others say the size of the brain drain is just not enough to merit a response

Question 55

Investment in health and nutrition is what kind of input in production?

Answer 55

Human capital

Question 56

How does investing in health improve productivity

Answer 56

Healthier workers can put more effort into their work.

Question 57

What is a key biological indicator of human capital investment in health?

Answer 57

The average height of a population, which is greatly affected by a lack of nutrition especially in the early years of life.

Question 57

Economic historian Robert Fogel has estimated that in 1780, _____ of Britons were so malnourished that they were incapable of manual labour.

Answer 57

1/5

Question 58

Robert Fogel estimated that the effect of nutritional improvements accounts for ____ percent of per-capita income in Britain since 1790.

Answer 58

30 percent.

Question 59

Taller workers tend to earn ____ than shorter ones.

Answer 59

more

Question 60

What is the vicious (or virtuous) cycle between health and wealth?

Answer 60

Poor people cannot afford food, which makes them malnourished, which helps perpetuate their poverty; On the other hand, policies that lead to improved growth can improve health, and make a good cycle!

Question 61

Why is respect for property rights essential to productivity in a market economy?

Answer 61

People need to be able to exercise authority over their resources, if they are to want to produce any more

Question 62

What institutions can help with property rights?

Answer 62

Courts, criminal and civil justice systems to enforce law and contracts, law enforcement, impersonal and uncorrupt government, stable institutions.

Question 63

Why is political instability dangerous to property rights?

Answer 63

Revolutionaries may not respect property rights.

Question 64

Why does the threat of revolution impede standards of living?

Answer 64

Because the threat of even potential expropriation dissuades potential domestic investment as well as international investment.

Question 65

What are inward-oriented policies?

Answer 65

Policies aimed at raising productivity and living standards within the country by avoiding interaction with the rest of the world.

Question 66

What are outward-oriented policies.

Answer 66

Policies that integrate countries into the global economy.

Question 67

Why is free trade comparable to a major technological advance?

Answer 67

It can transform one abundant good into a scarce good!

Question 68

Why is an inward orientation bad?

Answer 68

Smaller economies especially could not produce all of its consumer and capital goods and the standards of living would immediately fall

Question 69

How does geography assist with development from trade

Answer 69

Being close to the ocean makes trade much easier and far more profitable.

Question 70

What is the primary reason that living standards are higher today than they were a century ago?

Answer 70

Technological knowledge has advanced. The telephone, the transistor, the computer, and the internal combustion engine are among the innovations that have improve the ability to produce goods and services

Question 71

Almost all technological advance comes from _______

Answer 71

private research by firms and individual inventors