Econ 203_Chap.10 Flashcards
(20 cards)
How is economic growth typically measured?
Increases in real GDP, real GDP per capita, and productivity.
What are the benefits of economic growth?
Rising average living standards.
Changes in consumption patterns (shift towards services). Increased resources for environmental protection.
What are the costs of economic growth?
Forgone consumption.
Social costs (disruption, job losses). Environmental degradation.
What are the main sources of economic growth?
Growth in the labor force.
Growth in human capital. Growth in physical capital. Technological improvement.
In the long run, what condition determines the equilibrium real interest rate?
Desired national saving equals desired investment.
How does an increase in national saving affect the real interest rate and investment?
It reduces the real interest rate and encourages more investment.
How does an increase in the demand for investment affect the real interest rate and saving?
It pushes up the real interest rate and encourages more saving.
What does the Neoclassical growth model use to connect economic growth to its sources?
The aggregate production function.
What are the key assumptions about the aggregate production function?
Diminishing marginal returns.
Constant returns to scale.
According to the Neoclassical model, how does labor-force growth affect GDP and living standards?
Increases in the labor force lead to increases in GDP but a decline in living standards.
What is the role of technological change in the Neoclassical growth model?
Technological change is assumed to be exogenous and is crucial for sustained growth in real per capita incomes.
How do advanced theories differ from the Neoclassical growth model regarding technological change?
Advanced theories emphasize endogenous technological change, which responds to economic signals.
What are some factors that influence endogenous technological change?
Learning by doing.
Knowledge transfer. Market structure and innovation. Shocks and innovation.
How do advanced growth theories differ from Neoclassical theory regarding returns to investment?
Advanced theories suggest the possibility of increasing marginal returns, unlike the diminishing returns assumed by Neoclassical theory.
What are the two main issues discussed in the context of limits to growth?
Resource exhaustion.
Environmental degradation.
How has technological progress influenced concerns about resource exhaustion?
Technological progress has increased resource efficiency and led to the discovery of new resources, reducing concerns about absolute limits to growth.
Why is conscious pollution management necessary today?
Because current population and consumption levels have overwhelmed the Earth’s natural processes.
What is sustainable growth?
Growth based on knowledge-driven technological change that uses fewer resources and reduces environmental impact.
What economic policies are used to reduce greenhouse gas emissions and promote cleaner energy?
Carbon taxes and cap-and-trade systems.
What are the potential economic effects of these policies?
Initially, they may slow economic growth, but in the long run, adjustments to more efficient fuel sources could potentially enhance growth rates.
