Chapter 9

Unlike resource scarcity, ______________ don't automatically provide incentives for changed behavior.

environmental problems

growth accounting

estimates of the contribution of each major factor in the aggregate production function to economic growth

Thomas Malthus

rising population growth would cause productivity per capita to fall.

Economists say that long-run economic growth is almost entirely due to:

rising productivity

If real GDP per capita is growing at an annual rate of 3.5%, it will double in:

70/3.5 = 20 years

GDP per worker

= T x (physical capital per worker^0.4) x (human capital per worker^0.6)

Can long-run economic growth continue in the face of resource scarcity?

A question for economists. Resource scarcity and higher prices don't necessarily cost growth.

carbon tax

a tax per unit of carbon emmited

EastAsia's Miracle South Korea managed to achieve the same amount of growth in _______ years as other nations achieved in centuries.

35 -Real GDP per caipta grew about 7% per year for more than 30 years -other asian countries also had growth rates -driven by high savings, good basic education, technological progress

Diminishing returns to physical capital implies that when human capital per worker and the state of technology remain fixed, each successive in physical capital leads to _______ productivity.

a smaller increase in

Robert Gordon

argues that new information technologies wont create as much growth as the five big innovations: 1. Electricity 2. The internal combustion engine 3. Running Water and central heating 4. modern chemistry 5. mass communication, movies and telephones

Economists prefer market-based incentives in the form of:

carbon tax cap and trade system

Diminishing returns to physical capital

holding amount of human capital per worker and the state of technology fixed, each successive increase in the amount of physical capital per worker leads to a smaller increase in productivity

The improvement in labor made possible by education and knowledge that is embodied in the work force is known as _______ capital.

human

In the modern world, __________________ matter more than natural resources for the great majority of countries.

human or physical capital

physical capital

human-made resources buildings and machines

labor productivity

output per worker

Aggregate production function

a hypothetical function that shows how productivity (real GDP per worker) depends on the quantities of physical capital per worker and human capital per worker as well as the state of technology

Sustained economic growth occurs only when?

the amount of output produced by the average worker increases steadily.

total factor productivity

the amount of output that can be produced with a given amount of factor inputs

What is the impact of limited natural resources on long-run economic growth? Three important questions:

- How large are the supplies of key natural resources? -How effective will technology be finding alternatives to natural resources? -Can long-run economic growth continue in the face of resource scarcity?

Whats holding much of Africa back?

-government corruption -civil wars and political instability -unfavorable geography A big question: Is Africa poor because its politics are unstable? or vice versa?

How do we tell what caused the growth (and help develop future policy)?

-growth accounting -total factor productivity

What's holding Argentina (and other Latin American nations back)?

-irresponsible government that eroded savings though high inflation -lack of emphasis on education -political instability

The Rule of 70 (definition)

-magic of compounding -even small differences in growth rates get magnified over time -small improvements in growth add up fast (the power of compounding)

Why do growth rates differ?

-savings and investment spending -education -research and development(some by governments, some by firms)

How much does output change when we change inputs? (general)

Aggregate production function

There is a consensus in economics that government action is needed to deal with what?

Climate Change

The Rule of 70 (equation)

Doubling time for a variable = (70) / % growth rate

When may diminishing returns disappear?

If we increase the amount of human capital per worker or improve the technology or both as the amount of physical capital per worker is increased

Role of Government in Promoting Growth

Various government policies can promote growth -Government subsides to infrastructure -Government subsides to education -Government subsides to R&D -Maintain a well-functioning financial system -Protection of property rights -good governance

How much action is appropriate for economic growth's impact on climate change?

We are uncertain about how fast climate change is happening and what impact the solutions will have.

when the amount of human capital per worker and the technology are held fixed....

additional amounts of physical capital are less productive

technological process

an advance in the technical means of production in goods and services

The Aggregate Production Function (some well-know patterns)

diminishing returns to physical capital

Although Malthus' prediction does not apply to the current situation in the world, it does appear his prediction of ___________ was valid for much of human history.

falling or stagnant productivity

Which of the following changes would contribute to a nation's rapid long-run economic growth?

faster technological progress

increases in total factor productivity are crucial for______ and increases in total factor productivity likely measure the economic effects of _________________, so _________ is crucial to economic_______.

growth technological progress technological change growth

Economic growth tends to _________ the human impact on the environment.

increase

Explaining growth in productivity

increase in physical capital (more machines) increase in human capital (more training)

Convergence Hypothesis

international differences in Real GDP per capita tend to marrow over time -relatively poor countries should have higher rates of growth than relatively rich countries

If technology advances:

more output can be obtained from the same inputs.

When total factor productivity increases, the economy can produce _________ with the same quantity of _________, ___________, and _________.

more output; physical capital, human capital, and labor.

The best available measure of the standard of living in a country is:

real GDP per capita

cap and trade system

system in which the total amount of emissions is capped and producers must buy licenses to emit green house gases

conditional convergence

the idea that when you adjust for differences in education, infrastructure, rule of law, etc. then poorer countries do tend to have higher growth rates

human capital

the improvement in labor created by the education and knowledge embodied in the workforce

Thomas Malthus (full description)

wrote An Essay on Principle of Population in 1798 - land is fixed throughout the world. long-run growth will not be possible as population continues to grow -productivity per person will fall as population grows -increases in technology or physical capital would lead to only temporary improvements in productivity (more food -> more babies) -humanity will exist on the edge of starvation