Chapter 12: Production and Growth- Macroeconomic

Public good

That is, once one person discovers an idea, the idea enters society's pool of knowledge and other people can freely use it. (Just as government has a role in providing a public good such as national defense, it also has a role in encouraging the research and development of new technologies) (technologies)

Geography

The amount that a nation trades with others is determined not only by government policy but also by _________.

Heath and nutrition

can relate to human capital, which can also be referred to education.

property rights

An important prerequisite for the price system to work is an economy-wide respect for.... refer to the ability of people to exercise authority over the resources they own.

foreign portfolio investment.

An investment financed with foreign money but operated by domestic residents is called? (Ex: Americans provide the resources necessary to increase the stock of capital in Mexico. That is, American saving is being used to finance Mexican investment.)

Foreigners

Policies aimed to increasing a country's saving rate can increase investment and long-term economic growth. Yet saving by domestic residents is not the only way for a country to invest in new capital. The other way is investment by?

Long run

the higher saving rate leads to a higher level of productivity and income but not to higher growth in these variables. (Because of diminishing returns, an increase in the saving rate leads to higher growth only for a while)

factors of production.

the inputs used to produce goods and services—labor, capital, and so on.

Real GDP

income as measured by ______________ per person (Income per person vary widely from country to country)

Brain Drain

(One problem facing some poor countries is....) the emigration of many of the most highly educated workers to rich countries, where these workers can enjoy a higher standard of living. (education) (he United States and other rich countries have the best systems of higher education, and it would seem natural for poor countries to send their best students abroad to earn higher degrees. On the other hand, those students who have spent time abroad may choose not to return home, and this brain drain will reduce the poor nation's stock of human capital even further.)

foreign direct investment.

A capital investment that is owned and operated by a foreign entity is called? (Ex: Ford Motor Company might build a car factory in Mexico.) (Alternatively, an American might buy stock in a Mexican corporation (that is, buy a share in the ownership of the corporation), and the corporation can use the proceeds from the stock sale to build a new factory.)

renewable resource

A natural resource that can be replaced at the same rate at which the resource is consumed (A forest is an example of a renewable resource. When one tree is cut down, a seedling can be planted in its place to be harvested in the future.) (Natural Resources)

physical capital

Can also be known as "capital." the stock of equipment and structures that are used to produce goods and services is a produced factor of production. (capital is an input into the production process that in the past was an output from the production process.) (A determinant of productivity) (Workers are more productive if they have tools with which to work.) (Because capital is a produced factor of production, a society can change the amount of capital it has.)

Natural Seaport

Countries with ______ _______ find trade easier than those without this resource.

Robert Fogel

Economist who stated that improving health for better nutrition has been a significant factor in the long-run economic growth. "Among those who could work, insufficient caloric intake substantially reduced the work effort they could put forth. As nutrition improved, so did workers' productivity."

10%

In the United States, each year of schooling has historically raised a person's wage by an average of about? (education)

Outward-oriented policies

International trade in goods and services can improve the economic well-being of a country's citizens. (Most economists today believe that poor countries are better off pursuing _____ ____ ______) (Trade is, in some ways, a type of technology. When a country exports wheat and imports textiles, the country benefits as if it had invented a technology for turning wheat into textiles.)

Limits on natural resources

Most economists are less concerned about such limits to growth than one might guess. They argue that technological progress often yields ways to avoid these limits. (Modern cars have better gas mileage. New houses have better insulation and require less energy to heat and cool. More efficient oil rigs waste less oil in the process of extraction. Recycling allows some nonrenewable resources to be reused. The development of alternative fuels, such as ethanol instead of gasoline, allows us to substitute renewable for nonrenewable resources.)

political instability

One threat to property rights is... When revolutions and coups are common, there is doubt about whether property rights will be respected in the future. (If a revolutionary government might confiscate the capital of some businesses, as was often true after communist revolutions, domestic residents have less incentive to save, invest, and start new businesses. At the same time, foreigners have less incentive to invest in the country.)

10

The average income of a rich country is about __ times the average income in a poor country

People face trade-offs

The growth that arises from capital accumulation is not a free lunch: It requires that society sacrifice consumption of goods and services in the present to enjoy higher consumption in the future.

inward-oriented policies.

These policies aim to increase productivity and living standards within the country by avoiding interaction with the rest of the world. (Some of the world's poorest countries have tried to achieve more rapid economic growth by pursuing ___ __ ____) (Without being able to take advantage of the gains from trade, Ohio would need to produce all the goods it consumes. It would also have to produce all its own capital goods, rather than importing state-of-the-art equipment from other states. Living standards in Ohio would fall immediately, and the problem would likely only get worse over time.) (free trade)

Landlock countries

_______ ________ find international trade more difficult, they tend to have lower levels of income than countries with easy access to the world's waterways.

Patent System

When a person or firm creates an innovative product, such as a new drug, the inventor can apply for a patent. If the product is deemed truly original, the government awards the patent, which gives the inventor the exclusive right to make the product for a specified number of years. In essence, the patent gives the inventor a property right over her invention, turning her new idea from a public good into a private good. (By allowing inventors to profit from their inventions—even if only temporarily—the patent system increases the incentive for individuals and firms to engage in research.)

Opportunity cost of human capital

When students are in school, they forgo the wages they could have earned as members of the labor force. (Education) (In less developed countries, children often drop out of school at an early age, even though the benefit of additional schooling is very high, simply because their labor is needed to help support the family.)

only for a while

With the nation saving more, fewer resources are needed to make consumption goods and more resources are available to make capital goods. As a result, the capital stock increases, leading to rising productivity and more rapid growth in GDP. But how long does this higher rate of growth last?

nonrenewable resource

a resource that cannot be replaced (Oil is an example of a nonrenewable resource. Because oil is produced by nature over many millions of years, there is only a limited supply. Once the supply of oil is depleted, it is impossible to create more.)

common knowledge

after one person uses it, everyone becomes aware of it. (A form of technological knowledge-technological resources)

poor countries

are poor in part because their populations are not healthy, and their populations are not healthy in part because they are poor and cannot afford adequate healthcare and nutrition. (poor health and nutrition remain obstacles to higher productivity and improved living standards.)

market price

are the instrument with which the invisible hand of the marketplace brings supply and demand into balance in each of the many thousands of markets that make up the economy. (This division of production among many firms allows the economy's factors of production to be used as effectively as possible. To achieve this outcome, the economy has to coordinate transactions among these firms, as well as between firms and consumers. Market economies achieve this coordination through market prices.)

growth rate

measures how rapidly real income per person grew in the typical year. (ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real income per person over many years) ( world's richest countries are not guaranteed to remain the richest and that the world's poorest countries are not doomed to endless poverty.)

political institutions

economic prosperity depends in part on favorable_______ A country with an efficient court system, honest government officials, and a stable constitution will enjoy a higher standard of living than a country with a poor court system, corrupt officials, and frequent revolutions and coups.

patent system

gives that company a temporary right to be its exclusive manufacturer. When the patent expires, however, other companies are allowed to make the drug. (A form of technological knowledge-technological resources)

Height

is an indicator of productivity. (Of course, a person's height is determined by a combination of genetics and environment. But because the genetic makeup of a population is slow to change, such increases in average height are most likely due to changes in the environment—nutrition being the obvious explanation.)

externality

is the effect of one person's actions on the well-being of a bystander. (An educated person, for instance, might generate new ideas about how best to produce goods and services. If these ideas enter society's pool of knowledge so that everyone can use them, then the ideas are an external benefit of education.) (Education)

GNP

is the income earned by residents of the country both at home and abroad (Ex: When Ford opens its car factory in Mexico, some of the income the factory generates accrues to people who do not live in Mexico. As a result, foreign investment in Mexico raises the income of Mexicans (measured by GNP) by less than it raises the production in Mexico (measured by GDP).)

Proprietary

it is known only by the company that discovers it (A form of technological knowledge-technological resources)

GDP

measures two things at once: the total income earned by everyone in the economy and the total expenditure on the economy's output of goods and services. (is the income earned within the country by both residents and nonresidents) (GDP can measure these two things simultaneously because, for the economy as a whole, they must be equal. Put simply, an economy's income is the economy's output.)

Court

serve an important role in a market economy: They enforce property rights. Through the criminal justice system, the ________ discourage theft. In addition, through the civil justice system, the ____ ensure that buyers and sellers live up to their contracts.

technological knowledge

society's understanding of the best ways to produce goods and services (A determinant of productivity) (Technological knowledge takes many forms. Some technology is common knowledge. Other technology is proprietary)

Productivity

the amount of goods and services produced for each hour of work or the quantity of goods and services produced from each unit of labor input

natural resources

the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits. (A determinant of productivity) (Differences in natural resources are responsible for some of the differences in standards of living around the world. Although natural resources can be important, they are not necessary for an economy to be highly productive in producing goods and services. EX: Japan imports and exports) (Natural resources take two forms: renewable and nonrenewable)

human capital

the knowledge and skills that workers acquire through education and on-the-job training (A determinant of productivity) (Like physical capital, human capital raises a nation's ability to produce goods and services. Also like physical capital, human capital is a produced factor of production.) (Producing human capital requires inputs in the form of teachers, libraries, and student time.)

catch-up effect

the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich. (mall amounts of capital investment can substantially raise these workers' productivity. By contrast, workers in rich countries have high productivity partly because they have large amounts of capital with which to work. When the amount of capital per worker is already so high, additional capital investment has a relatively small effect on productivity.)

diminishing returns

the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases In other words, when workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly. (Because of diminishing returns, an increase in the saving rate leads to higher growth only for a while.)