ECON Chapter 10

What does the aggregate production function tell us about economic growth?

A country will produce more output if 1.it employs more workers. 2.its workers become more highly skilled. 3.it accumulates more physical capital.

What finally changed economic growth rates?

Agricultural advances resulted in more food and less hunger. Fewer people needed to work on farms. The Industrial Revolution sparked tremendous economic growth Economic growth led to higher standards of living and longer lives

All of the following are considered factors of production except

All of the above are factors of production.

Why does economic growth matter?

Before modern civilization, there was little to no economic growth Each generation lived exactly the same as its ancestors, largely hand-to-mouth. With advancements in agriculture, fewer people needed to work on farms. This led to the Industrial Revolution, which resulted in levels of economic growth never before experienced. Small differences in economic growth amplify over time, resulting in "rich" countries

The production function

Describes the methods by which inputs are transformed into outputs. EX: Bakery putting out pastries.

GDP per capita in the countries of Neverland and Everland are 2,000 and 500, respectively. This suggests that, other things being equal, the returns from capital investment would be:

Greater in Everland.

Which of the following government actions would represent the largest increase in physical capital?

Investment in hospitals and other health care facilities to modernize their operations.

How has economic growth varied throughout history?

It is estimated that between 1 million B.C. and 1200 A.D. GDP per person was around $200 per year People lived as hunters and gatherers. Around 12,000 years ago, people began to farm.

If Galaxia has a GDP that is 10 times larger than that of Myopia, which country would likely have greater marginal returns to capital based on the law of diminishing marginal returns to capital?

Myopia

Human capital

Skills that workers bring to the job

Physical capital

Tools, machinery, and structures

aggregate production function

relates total output (GDP) to the quantity of inputs employed. Y = f(L, H, K) Output = Function (Labor, Human capital, Physical capital)