Macroeconomics Chapter 7

Technological Knowledge

Technological knowledge refers to society's understanding of the best way to produce goods and services

Real GDP Per Capita

A measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country

Policies to Increase Human Capital Accumulation

Government policymakers can promote human capital accumulation by making education: free, accessible, compulsory, financially beneficial in the present

Diminishing Returns to Capital

Diminishing returns to capital may allow poorer nations to grow faster than more productive nations and "catch-up" over time, nations can increase investment by saving more domestically but the savings-induced productivity growth eventually levels out because of diminishing returns to capital

Policies to Encourage Technological Innovation

Government in developed countries can promote domestic investment in research and development, but the benefits are often global, beneficial government policies include research grands, R&D tax credits, and assigning patents

Corruption and Growth

Government officials are often corrupt and require bribes to do business, corruption strongly discourages entrepreneurial investments

Human Capital Per Worker

Human capital refers to the knowledge and skills that workers acquire through education, training and experience

Foreign Investment

Nations can also increase their capital stock through foreign investments in the country, i.e., investments made in a country financed by foreign firms and residents. This includes foreign direct investment and foreign portfolio investment

Benefits of Free Trade

Nations open to international trade have grown faster than those that try to restrict international trade, international trade exposes countries to new technologies and promotes "reverse engineering"

Natural Resources Per Worker

Natural resources are inputs in production that are provided by nature such as land, minerals, and waterways

Main Sources of Productivity Growth/Differences

Physical capital per worker, human capital per worker, natural resources per worker, technological knowledge

Physical Capital Per Worker

Physical capital refers to the structures and durable equipment that are used to produce goods and services

Political Instability and Growth

Political instability discourages investment because revolutionary governments often confiscate wealth from its owners

Importance of Property Rights

The market system depends on well-defined and consistently enforced property rights

Productivity

The quantity of goods and services produced from each unit of labor unit