Long-Run Economic Growth: Sources and Policies

Question 1

What Determines How Fast Economies Grow?

Answer 1

• labor productivity: the quantity of goods and services that can be produced by one worker or by one hour of work
• technological change: a positive or negative change in the ability of a firm to produce a given level of outputs with a given quantity of inputs

Question 2

Three main sources of technological change

Answer 2

1. Better machinery and equipment
2. Increases in human capital
3. Better means of organizing and managing production

Question 3

What is per-worker production function?

Answer 3

The relationship between real GDP per hour worked and capital per hour worked, holding the level of technology constant.

Question 4

Why isn’t the world rich?

Answer 4

US system

1. flexibility w/ labor system
2. efficiency w/ financial system

Question 5

Examples of growth policies

Answer 5

1. enhancing property rights and rule of law
2. improving health and education
3. policies that promote technology change
4. policies that promote savings and interest