ECON - Chapter 9
A sustained increase in per capita GDP arises from
higher productivity
how can a big time CEO make the same as a teacher?
higher quality degrees hold more total welfare than lower quality degrees. some degrees have more market based welfare than others.
aggregate production function
relationship that tell us how real GDP changes as the quantity of labor changes when all other influences of production remain the same
The source of money for investment is
savings
The standard of living in the United States has increased over time because
there has been long-run economic growth.
As the U.S. workforce becomes more educated:
there is increase in human capital
In the time since Malthus wrote his book
advances in technology and increases in physical capital have more than offset the effects of a rising population.
physical capital
all human-made goods that are used to produce other goods and services; tools and buildings
negative externality
A cost that individuals or firms impose on others without having to offer compensation. *In the absence of government intervention, individuals and firms have no incentive to reduce negative externalities.
True or False? A robot that can perform surgery is an example of human capital because it is a machine that can do the same task as a human.
False. A robot is physical capital. Human capital relates to the education and experience of the labor force.
True or False? Compared to a century ago, the amount of capital per worker has decreased because the labor force is so much larger today.
False.
In the United States, real GDP per capita in 2010 was ______ times as great as it was in 1900.
7
an international comparison today shows that
natural resources are less important than human and physical capital in determining productivity.
IT Paradox
new tech doesn't yield its full potential if you use it in old ways
A healthy banking system can contribute to the growth of an economy by
providing a way for savings to be channeled into business investment
Those who question whether long-run economic growth is sustainable emphasize that
rates of pop growth are too high
Total factor productivity is a measure of
the amount of output that can be produced with a given amount of factor inputs.
Economist Paul Romer described R&D as
the creation of improved instructions.
Using the Rule of 70, we can determine that, if real GDP per capita is growing at a rate of 1.6 percent per year, it will double in approximately _______ years.
44
over the course of the 20th century, real GDP per capita in the U.S. increased by how much?
5 fold
True or False? If the government builds infrastructure, it decreases economic growth because it crowds out the private sector.
False. Much infrastructure would not be provided by the private sector and infrastructure provides long term benefits.
Most physical capital is created by _______, and most human capital is created by _______ .
business government
what are farmland and canals considered as?
capital NOT LAND
The improved capabilities of labor arising from education and knowledge are known as
human capital
what is not a determinant of productivity?
level of wages
The inputs of the aggregate production function are
physical capital per worker, human capital per worker, and technology
The primary reason for the poor economic performance within sub-Saharan Africa is
political instability
Latin America - why so bad?
poor education political instability irresponsible gov policies
Long-run economic growth depends primarily on:
productivity
Diminishing returns to physical capital may disappear if:
technology improves
An aggregate production function will show how productivity depends on
technology, human capital, physical capital
Sustained economic growth occurs only when
the productivity of workers increases steadily
sources of long run growth
1. (labor) productivity = output per worker 2. phys capital = human-made resources (buildings, machines) 3. human capital = improvement in labor created by the education + knowledge embodied in the workforce 4. technology = technical means for the production of goods + services
what are two crucial ingredients in long run econ growth
1. political stability 2. protection of property rights *excessive gov intervention can decrease econ growth
Over the past century, the annual rate of growth of per capita GDP has averaged
1.8%
each 1% rise in physical capital per worker, holding human capital and tech constant, raises output per worker by
1/3 of 1% or 0.33%
Southland has a real GDP per capita of $5000, which is growing at 10%. Northland has a real GDP per capita of $10,000, which is growing at 5%. Real GDP per capita for the two nations will converge in ______ years.
14 years. Southland: 5,000 -> 10,000 in 70/10 = 7 years. So 20,000 in 14 years. Northland: 10,000 -> 20,000 in 70/5 = 14 years.
Over the period of 1948 to 2007, American labor productivity rose by
2.3% per year
If an amount doubles in 10 years, its growth rate must be
According to the Rule of 70, 70/growth rate = # of years needed for amt to double. If growth rate = 7%, amt doubles in 10 years.
The U.S. became the world's leading economy in part because
American firms were among the first to make research and development a part of their operations.
The only country in Latin America that has achieved rapid economic growth is ______.
Chile
True or False? Diminishing returns to physical capital means that real GDP per worker eventually decreases as physical capital per worker increases.
False. Diminishing returns to physical capital means that the increase in real GDP per worker is smaller, but still positive, as more physical capital per worker is added.
True or False? The most important measure used to determine economic growth is the population size divided by real GDP.
False. The most important measure of economic growth is real GDP per capita, which is real GDP divided by population size.
recent example of APF
GDP per worker = T x (Physical capital per worker) ^0.4 x (Human capital per worker)^0.6 where T reps an estimate of the level of tech and each year of education raises workers' human capital by 7%
what can enhance productivity and growth?
Governments that provide and maintain a good infrastructure for economic activity
Real GDP in the country of Esperano has grown at 4% per year for the last 30 years. The labor force has grown at 1% per year and the quantity of physical capital has grown at 5% per year. A 1% increase in average physical capital per worker (all other things being equal) raises productivity by 0.5%. Average education has not changed. How much has technological progress contributed to productivity growth?
Productivity increased by 3% and the growth of physical capital contributed 2%, so technology contributed 1%. so 1%
The book published by scientists in the Club of Rome was
The Limits to Growth
Physical capital per worker increased by 4%. How much has growing physical capital per worker contributed to productivity growth?
This raises productivity by 0.5 x 4%, which is 2%.
The first modern industrial research lab was created by ________.
Thomas Edison
True or False? Between 1980 and 1994 real GDP per capita actually decreased in sub-Saharan Africa.
True
True or False? Burning fossil fuels releases carbon dioxide into the atmosphere which creates a greenhouse effect, which causes climate change.
True
True or False? During the twentieth century in the U.S., most of the growth in real GDP per capita was due to increases in productivity.
True
True or False? Information technology began to impact productivity when people used the new technology to change their way of doing business, such as replacing letters and phone calls with e-mail.
True
True or False? Public health measures, such as clean water and disease control, are examples of infrastructure.
True
True or False? South Korea is part of the East-Asian miracle because it has experienced rapid technological progress, high rates of savings and investment in physical capital, and improvement in human capital.
True
True or False? In the nineteenth century countries with the highest real GDP per capita also had abundant natural resources.
True.
True or False? The average worker today is more productive than workers a century ago because even though they have less physical capital on average, they have more education to offset this disadvantage
Workers today are more productive because they have more physical capital per worker as well as more education.
aggregate production function formula
Y = F(T,K,Z,L) Y = Real GDP T = Technology K = Physical Capital Z = Natural Resources L = Labor Hours
aggregate production function
Y/L = f(K/L, H/L, T) Y = F(T,K,Z,L) Y = Real GDP T = Technology K = Physical Capital Z or H = Natural Resources L = Labor Hours
education enhances economic growth by
adding to the stock of human capital.
what region's growth rates have converged?
advanced countries NOT the world
Diminishing returns to physical capital may disappear if we
also increase the level of technology and human capital
When more physical capital is added to the production process but the number of workers remains constant:
amount of output per worker increases, but at a decreasing rate
total factor productivity
amount of output that can be achieved with a given amount of factor inputs
growth rates depend on
changing pop increasing tech more capital per worker
why did china grow faster than india?
china's higher levels of investment spending, which raised its level of phys capital per worker faster than india's faster chinese technological progress
R&D is paid for by
combo of private and government funds
aggregate production function exhibits
diminishing returns to physical capital when holding the amount of human capital and the state of technology fixed, each successive increase in the amount of physical capital leads to a smaller increase in productivity
In order to increase its stock of physical capital, an economy must:
engage in investment spending
Economists believe that likely limits to economic growth will arise mainly because of:
environment degradation
growth accting
estimates the contrib of each major factor in the agg prodxn fxn to econ growth
Countries that add significantly to their stock of physical capital
experience diminishing marginal returns to labor
True or False? If the government imposes tariffs on imports, it will raise productivity growth.
false
Money is channeled from savings to investment in the ______ market
financial
The sources of savings are
foreign and domestic households
what made ireland turn things around for the better?
good infrastructure and human capital
Typically, countries in which investment accounts for a large share of GDP
have a high domestic savings rate
East Asia - why so good?
high savings + investment spending rates education emphasis adoption of tech advances from others
aggregate production function
hypothetical function that shows how productivity (real GDP per worker) depends on the quantities of physical capital per worker + human capital per worker as well as the state of tech
what makes long run growth sustainable?
if it can continue in the face of the limited supply of natural resources and the impact of growth on the environment
some have argued that the current approach to sustained growth is flawed and it assumes
infinite growth
growth rates productivity + work week hours (manufacturing)
inverse relationship productivity increases as number of hours worked per week decreases
Japan enjoyed a rapid growth rate in the 1960s because it spent a very large share of its GDP on ________ .
investment
as physical capital per worker rises, what happens to real GDP per worker?
it becomes smaller
Total factor productivity measures the economic effect of:
technological progress
The key statistic used to track economic growth is
real GDP per capita
The key statistic used to track economic growth over time is
real GDP per capita
real GDP per capita
real GDP/population
convergence hypothesis asserts that
relatively poor countries will have higher growth rates than prosperous countries will.
____________ is spending used to create and implement new technologies.
research & development
New growth theory asserts that technological change
responds to economic incentives
The primary ingredient necessary for long-run economic growth is
rising labor productivity
sub Saharan Africa - why so ugly?
severe instability war poor infrastructure (affecting public health)
technological progress effect on productivity curve
shifts it upward = increase in real GDP per worker
Long-run economic growth is _________ if it can continue in the face of limited natural resources and the impact of growth on the environment.
sustainable
Growth accounting allows us to calculate
the effects of greater physical and human capital on economic growth.
human capital
the knowledge and skills that workers acquire through education, training, and experience
The evidence seems to suggest that innovations in information technology made the most significant contributions to productivity:
when they changed the way office work was done
a reasonable increase in physical capital per worker will/won't reduce productivity
won't due to dim returns, at some point increasing the amt of phys capital per worker no longer produces an economic payoff