Econ - Chapter 12

Question 1

Componding

Answer 1

GDPo(1+g) ^t=GDPt

Question 2

Doubling time

Answer 2

2GDP = 70/g (in %)

Question 3

What determines the total output (Y)?

Answer 3

Factors of Production
- Labor (L)
- Physical Capital (K)
- Human Capital (H)
- Natural Resources (N)
- Technology (A)

Question 4

Labor

Answer 4

number of works –> labor hours

Question 5

Physical Capital

Answer 5

stock of equipment/structures –> machines, tools, factories, etc

Question 6

Human Capital

Answer 6

knowledge and skill of worker –> acquired through education, training

Question 7

natural resources

Answer 7

inputs that nature provides –> land, river, mineral deposits, etc

Question 8

technology

Answer 8

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

Question 9

Production Functin

Answer 9

shows the relation between outputs and inputs
Y = A F(L, K, H, N)

Question 10

Productivity

Answer 10

A country’s standard of living depends on its ability to produce goods and service per unit if labor
= Y/ L = output per labor

Question 11

Constant Returns to Scale (CRS)

Answer 11

if we scale all inputs by the same amount, outputs get scaled by the same amount

Question 12

Productivity depends on

Answer 12

A F(K/L, H/L, N/L)
- level of technology (A)
- Physical Capital/ worker (K/L)
- Human Capital/ worker (H/L)
- Natural resources/ worker (N/L)

Question 13

Per Worker Production Function

Answer 13

Y = A F(L, K) –> Y/L = A F(K//L)
i.e. output/worker is a function of capital/ worker

Question 14

Marginal Product of Capital (MPK)

Answer 14

• How much output increases when we give a worker an extra unit of capital ( a. e. e.)
• slope of the production function
• diminishing marginal product

Question 15

Two Main Sources of Economic Growth

Answer 15

1. Factor Accumulation
2. Technological Progress

Question 16

Capital Accumlation

Answer 16

increasing capital stock (increasing factories, machinery, tools, infrastructure, etc)
movement along the production function

Question 17

How can we expand capital stock

Answer 17

• investment
• need savings

Question 18

Capital Accumulation Reliable?

Answer 18

Cannot rely on capital accumulation to grow indefinitely
Diminishing return kicks in (due to diminishing marginal produce of capital)

Question 19

Technological Progress

Answer 19

• Main source to explain rising living standards in the US

Question 20

Catch-up Growth

Answer 20

• Poor countries have the capacity to grow faster and in effect catch up with countries
• Poor countries have lower capital/ worker than rich
• Therefore, one additional unit of capital can generate increase in output in poor countries

Question 21

Another reason poor countries can grow faster

Answer 21

poor countries can just adopt tech that already exists, while rich countries have to create new technologye

Question 22

econ growth through public policy

Answer 22

• improving/ expanding the following could raise productivity of workers
• K/L
• H/L
• good institutions
• trade
• resource and development

Question 23

Physical capital / worker

Answer 23

• Expansion of capital stock (investment)
• need saving to finance investment spending
• poor countries have lower capacity to save
• investment from abroad

Question 24

investment from abroad

Answer 24

foreign direct investment and foreign portfolio investment

Question 25

foreign direct investment

Answer 25

owned and operated by foreign entity

Question 26

foreign portfolio investment

Answer 26

financed by foreign money but operated by domestic entity