econ 213 ch 7- economic growth

thomas malthus

-argued that society was doomed to poverty, as population increased geometrically, while food supply grew arithmetically -led to describe economics as the dismal science

year-over-year rate

-compares gdp at the current quarter with the previous year -provides trend in growth for the entire year

catch up effect

-describes why developing countries may initially grow faster than developed countries -developing countries can use existing technologies to make their inputs more productive, while developed countries must innovate to increase growth

capital-to-labor ratio

-measures the amount of physical capital available per worker -higher ratio equals greater labor productivity

total factor productivity

-measures the portion of output that is not explained by the amount of inputs used -captures the external effects influencing productivity of all inputs

long-run growth

-occurs when an economy finds new resources or finds ways to use existing resources better -ex: discovery of huge natural gas deposits

short-run growth

-occurs when an economy makes use of existing but underutilized resources -common during recovery from a recession

annualized rate

-the quarterly change in GDP is multiplied by 4 -highlights seasonal fluctuations in growth

-land and natural resources -labor (and human capital) -physical capital -technology (entrepreneurial ability and ideas)

4 factors of production

Human capital (H)

Improvements to labor from training and education

technology (A)

___ enhances the productivity of all physical resources

-contributing to physical capital, human capital, and technology -enforcing contracts, protecting property rights, and maintaining a stable financial system -promoting free and competitive markets

a government can influence the economic growth in a country by: (3 things)

compounding

allows small rates of growth to turn into substantial increases in income over time

labor productivity

amount of goods/services produced by a typical worker in a typical hour of labor

diminishing returns to capital

catch-up effect is subject to:

OUTPUT = f (L,K)

classical form of production function (labor and capital)

higher

countries with higher economic freedom have a ___ average per capita GDP

diminishing returns

each additional unit of capital increases output by a positive but smaller amount

1. reduced poverty rates 2. improved health and longer life expectancies 3. greater investment in education and technology

economic growth factors that contribute to standard of living:

real gdp and real gdp per capita

economic growth is most commonly measured by: (2 things)

maintaining a country's infrastructure

ensures efficient transport of goods and services

long-run growth

expansion of the PPF

1. improve its labor productivity 2. have a larger percentage of the population working

for a country to increase its standard of living, it must either:

increases in a country's standard of living

if real GDP grows faster than population over time, it leads to:

OUTPUT = A * f(L, K, H, N)

incorporating all factors of production into production function

land and natural resources (N)

land and raw resources from the land

physical capital (K)

manufactured items used to produce goods and services

production function

measures how an economy turns inputs into outputs using existing technology

Labor (L)

mental and physical talents

short-run growth

movement toward a PPF

-good governance (democracy w/ free/open elections, fair tax system and prudent spending) -capitalist, market-based economic system -solid foundation of government oversight, protection, and partnership -foster free and fair trade -encourage investment in infrastructure, human and physical capital, R&D

policies effective for economic growth:

economic growth

primary factor in explaining how well people live (standard of living)

Y/L = Af [ (K/L)(H/L)(N/L) ]

production function

wages and incomes

productivity is the key driver of:

how effectively inputs are converted to outputs

productivity measures:

(real GDP/# of workers) * (# of workers/population)

real GDP/population = ?

real gdp per capita

real gap divided by population

70/annual growth rate = number of years for value to double

rule of 70

entrepreneurship/technology (A)

the ability to use resources to produce goods and services

labor productivity

the ratio of the output of goods and services to the labor hours used to produce that output

-natural disasters -new discoveries or innovations -changes in a country's institutions

total factor productivity includes factors such as:

real gdp

total output in a year measured in constant-year prices

productivity

what affects growth of real GDP?

because US workers are extremely productive

why is the US such a wealthy country?