Econ 101: Economic Growth

Catch-up effect

Countries that start off poor tend to grow more rapidly than countries that start off Rich

Economic growth

Increase in real output of an economy over time.

What can government policy do to raise productivity and living standards?

Save and invest, Diminish returns, Catch up effect, invests from abroad, Education, Health and nutrition, Property rights and political stability, Free-trade, Research and development, Population growth

Technological knowledge

Society's understanding of the best ways to produce goods and services

Natural resources

The inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits

Human capital

The knowledge and skills that workers acquire through education, training, and experience

Investment from abroad

a way to increase growth which increases the economy's stock of capital, leads to higher productivity, higher wages, and allows poor countries to learn state-the-art technologies used in rich countries.

Economic development

actions of communities and policymakers that improve the standard of living and economic health of a specific locality.

Health and Nutrition

another way to increase economic growth/productivity by investing in human capital by creating a healthy population. The healthier the population, the more productive they are and the higher the standards of living are.

Diminishing returns

as the stock of capital rises, the extra output produced from an additional unit of capital falls. Higher saving rates leads to higher levels of productivity,

inward-oriented policies

avoid interaction with the rest of the world as an attempt to increase productivity and living standards within a country

Education

by investing in human capital, a country can increase economic growth. Education poses as a positive externality for society leading to higher wages for educated individuals.

Property rights and political stability

by protecting these rights, a country can foster economic development by giving individuals the ability to exercise the authority over the resources they own. Without that, it creates political instability leading less incentives to save, invest, and start businesses.

Foreign direct investment

capital investment that is owned by a foreign entity

How is productivity determined?

determinants are physical capital, human capital, natural resources, and technological knowledge.

Research and development

governments encourage this because it leads to technological advances that can be used as public goods and knowledge. ex. supporting farming methods, aerospace research, science, patent system

Population growth

increasing this can lead to more workers to produce goods and services but can also dilute the capital stock leading to lower productivity and GDP. As a result, some countries put regulations in place to control the rate.

outward-oriented policies

integrating a poor country into the world economy in order to increase economic growth.

Saving and investments

invest more current resources in the production of capital... trade off- society must consume less and save more of its current income (sacrifice goods and services in the present to enjoy higher consumption in the future)

Foreign portfolio investment

investment financed with foreign money but operated by domestic residents

Why is productivity so important?

it is the key determinant of living standards

Promoting technological progress

the idea that if there is more people then there are more scientists, inventors, and engineers to contribute to technological advancements which benefit everyone

Virtuous circle

the idea that policies that lead to more rapid economic growth would naturally improve health outcomes, which in turn would further promote economic growth.

Vicious circle

the idea that poor countries are poor because their populations are not healthy, and their populations are not healthy because they are poor and cannot afford adequate healthcare and nutrition.

Productivity

the quantity of goods and services produced from each unit of labor input

Physical capital

the stock of equipment and structures used to produce goods and services