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Flashcards in Economic Growth Deck (25)
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1
Q

What is the long-run average rate of growth in real GDP? Real GDP per capita?

A
  • Real GDP per year 3%

* Reap GDP per capita 2%

2
Q

How does long-run U.S. growth generally compare with Europe? Asia? Africa?

A

• Faster the Europe and Africa, slower than Asia

3
Q

What is productivity? Why does it matter to economic growth?

A

• Productivity
(an economic measure of output per unit of input)
o Input includes labor and capital
o Output measured in revenues and other GDP components
o Output per worker (Y/L)
o (Output/worker)labor force (Y=Y/LL)
• Economic growth
o Productivity allows economy to accomplish more with less
• Capital and labor are both scarce resources so maximizing their impact is always a core concern of mod. Business

4
Q

What is the role of technology in economic growth?

A

• Technology
o Innovation and invention
• Important to economic growth
• New ways of doing things are important

5
Q

Whats is the role in economic growth: Political Structure and property rights

A

o Interplay of economic and political freedom

o Stake in system results in work harder

6
Q

Whats is the role in economic growth: Human Capital

A

o Determinant in labor productivity, results in growth

7
Q

Whats is the role in economic growth: Capital

A

o Investment in capital increases productivity

8
Q

Whats is the role in economic growth: Savings

A

o Higher saving higher steady state Y/L (output per worker)

9
Q

Whats is the role in economic growth: Education

A

o Increases human capital which increases productivity

10
Q

Whats is the role in economic growth: Natural Resources

A

o Part of the production function
• Production function
(defines marginal product and to distinguish allocative efficiency)
• Y=Af

11
Q

Whats is the role in economic growth: Industrial Policy

A

o Government planning

• Does not increase LR growth

12
Q

Whats is the role in economic growth: Population growth

A

o Might cause economic growth
• Malthus’ Law
 Population grow geometrically, food arithmetically

13
Q

Whats is the role in economic growth: Research and Development

A

o Important to economic growth
o Knowledge public good
o Internalize externalize with patents

14
Q

Whats is the role in economic growth: Taxes

A

o Less likely better

o Perhaps consumption tax

15
Q

Whats is the role in economic growth: Free trade

A

o Encouraged

o Comparative advantage

16
Q

Whats is the role in economic growth: Trickle down economics

A

o Pro-business/ pro-rich policies will eventually benefit the non-rich
o Helps the rich crumbs down to the rest

17
Q

Whats is the role in economic growth: Government budget deficits

A

o Reduced gov spending and deficits to reduce crowing out which result in encouraging of saving, investment, and innovation
o Crowding out is when gov must finance its spending with taxes and/or with deficit spending leaving business with less money and effectively ’crowding them out’

18
Q

How do you calculate growth rates?

A

• Rule of 72
o #years to double =72/ growth rate
o growth rate= 72/#years to double

19
Q

What is the rule of 72? (Or 70)? How do you use it?

A

• 72/ growth rate= # years to double
o 10% -> 72/10=7.2
o Doubles in 4 years -> 72/x=4 x=18% per year

20
Q

How does an increase in saving affect the economy in the long-run? Short run?

A

• Long-run
o Capital accumulation
o Consumption tax, IRA’s
• Short-run

21
Q

Explain the idea of Classical/Malthusian theory of economic growth?

A

o Limited resources(land) leads to diminishing returns and ultimately decline in per capita wages to subsistence levels

22
Q

Explain the idea of Neo-Classical – Slow Model theory of economic growth?

A

o Economy grows until in the long-run it hits a steady state with no growth in per capita GDP/ income unless tech change(unexplained by model-outside of it)

23
Q

Explain the idea of Endogenous or New Growth Theory theory of economic growth?

A

o Explains determinants of technological change and thus growth

24
Q

Explain the idea of Creative Destruction theory of economic growth?

A

o Revolutionizes the economic structure from within, incessantly destroying the old one which can cause progress and improve standards of living

25
Q

What’s wrong with Malthus’ law? (Why hasn’t it held for developed countries?)

A

• Malthus Law
(population grows geometrically, food arithmetically wages driven down to subsistence levels)
o Ignored increases in capital, technological change, population control
• Developed countries are always growing