Macroeconomics Chapter 7
Output
A x F(L,K,H,N) A= Total output equals technology L= Times a function of available labor K= Physical Capital H= Human Capital N= Natural resources
Catch-up effect
Countries with smaller starting levels of capital experience larger benefits from increased capital, allowing these countries to grow faster than countries with abundant capital
Investment in human capital
Improvements to the labor force from investments in skills, knowledge, and the overall quality of workers and their productivity
Economic Growth
In Calculating economic growth, we might measure real GDP or real GDP per capita.
Production Function
Measures the output that is produced using various combinations of inputs and a fixed level of technology -It is a mathematical function that relates the maximum amount of output that can be obtained from a given number of inputs - generally capital and labor.
Economic Growth
Plays a very powerful role in how people live and how standards of living change over time
real GDP per capita
Real GDP divided by population. Provides a rough estimate of a country's standard of living
Compounding
The ability of growth to build on previous growth. It allows a value such as GDP to increase significantly over time as income increases on top of previous increases in income
Capital-to-labor ratio
The capital employed per worker. A higher ratio means higher labor productivity, and as a result, higher wages
Total factor productivity
The portion of output produced that is not explained by the number of inputs used in production
Infrastructure
The public capital of a nation, including transportation networks, power plants, public education institutes, and other intangible resources such as protection of property rights and a stable monetary environment
Real GDP
The total value of final goods and services produced in a country in a year measured using prices in a base year
Rule of 70
There is an easy way to approximate the number of years for an amount to double in value by using the rule of 70 x= 70 / Growth rate
Diminishing returns to capital
Each additional unit of capital provides a smaller increase in output than the previous unit of capital
