ECON 202 - Chapter 7

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

Diminishing returns to capital

each additional unit of capital provides a smaller increase in output than the previous unit of capital

Productivity

how effectively inputs are converted into outputs; labor productivity is the ratio of the output of goods and services to the labor hours devoted to the production of that output; higher productivity and higher living standards are closely related

Investment in human capital

improvements to the labor force from investments in skills, knowledge, and the overall quality of workers and their productivity

Production function

measures the output that is produced using various combinations of inputs and a fixed level of technology

Rule of 70

provides an estimate of the number of years for a value to double, and is calculated as 70 divided by the annual growth rate

Total factor productivity

the portion of output proceeded that is not explained by the number of inputs used in productions

Infrastructure

the public capital of a nation, including transportation networks, power-generating plants and transmission facilities, public education institution, 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

Economic growth

usually measured by the annual percentage change in real GDP, reflecting an improvement in the standard of living

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 income

Capital-to-labor ratio

the capital employed per worker; a higher ratio means higher labor productivity and, as a result, higher wages