Economic Growth Flashcards
(26 cards)
What is the long-run average rate of growth in real GDP? Real GDP per capita?
- Real GDP per year 3%
* Reap GDP per capita 2%
How does long-run U.S. growth generally compare with Europe? Asia? Africa?
• Faster the Europe and Africa, slower than Asia
What is 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)
Why does Productivity matter in 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
What is the role of technology in economic growth?
• Technology
o Innovation and invention
• Important to economic growth
• New ways of doing things are important
What is the role of Political structure and property rights in economic growth?
o Interplay of economic and political freedom
o Stake in system results in work harder
What is the role of Human Capital in economic growth?
o Determinant in labor productivity, results in growth
What is the role of Capital in economic growth?
o Investment in capital increases productivity
What is the role of Savings in economic growth?
o Higher saving higher steady state Y/L (output per worker)
What is the role of Education in economic growth?
o Increases human capital which increases productivity
What is the role of Natural Resources in economic growth?
o Part of the production function
• Production function
(defines marginal product and to distinguish allocative efficiency)
• Y=Af
What is the role of Industrial Policy in economic growth?
o Government planning
• Does not increase LR growth
What is the role of Population Growth in economic growth?
o Might cause economic growth
• Malthus’ Law: Population grow geometrically, food arithmetically
What is the role of Research and development in economic growth?
o Important to economic growth
o Knowledge public good
o Internalize externalize with patents
What is the role of Taxes in economic growth?
o Less likely better
o Perhaps consumption tax
What is the role of Free Trade in economic growth?
o Encouraged
o Comparative advantage
What is the role of Trickle down economics in economic growth?
o Pro-business/ pro-rich policies will eventually benefit the non-rich
o Helps the rich crumbs down to the rest
What is the role of Government Budget deficits in economic growth?
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’
How do you calculate growth rates?
• Rule of 72
o #years to double =72/ growth rate
o growth rate= 72/#years to double
What is the rule of 72? (Or 70)? How do you use it?
• 72/ growth rate= # years to double
o 10% -> 72/10=7.2
o Doubles in 4 years -> 72/x=4 x=18% per year
How does an increase in saving affect the economy in the long-run? Short run?
• Long-run
o Capital accumulation
o Consumption tax, IRA’s
• Short-run
Explain the idea of Classical/Malthusian theory of economic growth?
o Limited resources(land) leads to diminishing returns and ultimately decline in per capita wages to subsistence levels
Explain the idea of Neo-Classical – Solow Model theory of economic growth?
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)
Explain the idea of Endogeneous or New Growth theory of economic growth?
o Explains determinants of technological change and thus growth
