Chapter 7: Economic Growth

1)RULE OF 70 2) Number of years to for value to double = 70 ÷ growth rate

1)There is an easy way to approximate the number of years it takes for an amount to double in value by using the ________ 2) What is the equation for this?

Human capital

A term economists use to describe skills, knowledge, and the quality of workers.

Diminishing returns to capital

Although capital is a powerful contributor to productivity, it is subject to what?

An example of how capital to labor helps with economic growth.

American farmers earn a far higher income than their counterparts in the developing world because of the high capital to labor ratio on American farms

More output per person

An increase in the labor force generally leads to greater output, but not necessarily

Maintain purchasing power of the currency • Facilitate transactions • Allow for the functioning of credit institutions

Another important component of a nation's infrastructure is a stable and secure financial system to:

The buying habits of their customers and to provide targeted advertisements

Businesses use social media both to gather information about what?

CHECKPOINT: APPLYING THE PRODUCTION FUNCTION • Productivity is the key driver for economic growth, and rises when labor is able to produce greater quantities and higher values of output. • Total factor productivity measures the portion of output that is not explained by the amount of inputs placed into use. - It captures the external effects that influence the productivity of all inputs

CHECKPOINT: APPLYING THE PRODUCTION FUNCTION

Government has an important role in promoting economic growth by providing physical and human capital, ensuring the stability of legal and financial systems, and promoting free and competitive markets. • The Index of Economic Freedom measures a country's infrastructure that supports economic growth

CHECKPOINT: THE ROLE OF GOVERNMENT IN ECONOMIC GROWTH

The primary factors of production are land and natural resources, labor, human capital, physical capital, and technology. • A production function measures the amount of output that can be produced using different combinations of inputs Short run growth occurs from using resources that have been idle or underused. • Long run growth occurs when the productive capacity of an economy is expanded through more resources or better uses of existing resources.

CHECKPOINT: THINKING ABOUT SHORT RUN AND LONG RUN GROWTH

Economic growth is measured by the increase in real GDP and real GDP per capita. • Small differences in growth rates translate into large differences in income over time. • The Rule of 70 provides an easy way to approximate the number of years required for a value to double.

CHECKPOINT: WHY IS ECONOMIC GROWTH SO IMPORTANT?

Money prices

Consumers and businesses rely on______ to convey information about the state of the market

Effectively

ECONOMIC GROWTH FROM LAND • Countries that are abundant in land and natural resources have an advantage that can translate into economic growth only if these resources are used ____

Only if the quality of labor is enhanced

Economic growth exceed population growth only if?

*Good to knows*

Even small differences in growth rates turn into large differences over time

Legal system and ensuring stability of the financial system

GOVERNMENT PROVIDED ENHANCEMENTS TO GROWTH Governments can also promote economic growth by establishing a?

Infrastructure

GOVERNMENT PROVIDED ENHANCEMENTS TO GROWTH _______ is defined as a country's public capital:

Dams, roads, and bridges - Transportation networks - Power plants and transmission lines - Telecommunications networks - Public education facilities

Give 5 examples of Infrastructure

Los Alamos National Labs and Sandia Labs _ National Institutes of Health - NASA - National Oceanic and Atmospheric Administration (NOAA)

Government also can finance the growth in technology. Some of the largest research centers in the country are government funded:

Both producers and consumers have more difficulty using resources efficiently

If price signals are distorted by inflation or deflation What happens?

Financial assistance

In addition to direct school funding, the government offers various forms of ______ for students to use in paying their educational expenses

Real GDP or Real GDP per capita

In calculating economic growth, we might measure what? Both measures remove the effects of inflation allowing for more accurate comparisons in output from year to year

Technology

In the production function, ___ enhances the productive capacity of all other resources.

business trade fiscal policy government size monetary policy investment finance property rights corruption and labor

Index of Economic Freedom incorporates information from 10 categories including:

Catch up effect

It describes the idea that developing countries are able to achieve greater productivity from capital because they have the advantage of using technologies that have already been developed by other countries

capital to labor ratio

One factor to consider in economic growth is the

Index of Economic Freedom

One reasonably objective measure for infrastructure is the

Investment in human capital

One source of productivity growth comes from improvements to the labor force from

United States, Mexico

Over the past 100 years, the United States grew 2% a year on average, while Mexico grew 1.2% a year on average. Because of the power of compounding, standards of living in the _____ are now much higher than in ______

Countries are recovering from an economic downturn - Obstacles preventing resources from being fully used are loosened

Short run growth is common when:

Productivity

The extent to which inputs are converted into outputs is referred to as is a key driver of wages and incomes

A minimum level of education

The government plays an important role in ensuring that every person has access to ?

Create a production function that measures output per worker

The key question is how growth affects our standard of living. What is One way to measure living standards?

Market exchange

The legal enforcement of contract rights facilitates

Total factor productivity

The measure of output that is not explained by the number of inputs used in production is called It captures the factors that influence the overall effectiveness of inputs

Because American workers produce more per hour than do workers in most other countries.

The primary reason the American standard of living is so high is because?

Land and natural resources (N) • Labor (L) • Human capital (H) • Physical capital (K) • Entrepreneurial ability, technology and ideas

These factors of production contribute to economic growth

Inflations or deflations

Unanticipated____ or ____ are both detrimental to economic growth

PPF diagrams

We can use ______ to show the difference between short run and long run economic growth.

Capital development

Well defined property rights are essential for ?

Property crime rates fell 46%. - Percent of the population with a four year college degree increased from 17% to 31%. - Average life expectancy increased from 73 years to 78 years. - There was a 39% increase in the number of degree granting colleges and universities.

What are some benefits of growth in the United States (1980 to 2012):

Technological improvements

What play the major role in improving productivity, raising the standard of living, and increasing economic growth

To maintaining competitive and efficient markets and the freedom for firms and individuals to pursue their interests.

What's another role of government in promoting economic growth?

Compounding

________ is the process in which growth builds upon prior growth. - (It can turn small rates of growth into substantial increases in income over time, leading to better lives for all.)

Real GDP

_________is GDP measured in constant year dollars.

Patent and copyright laws

______protect innovators for specified lengths of time, preserving incentives to design new technologies

THOMAS MALTHUS

_____pioneered the frontiers of economic knowledge at the beginning of the 19th century. - He predicted that population growth would outpace the growth of the food supply. - At the time, standards of living were showing little to no growth.

Social Media

allows both individuals and firms to do more with fewer resources, contributing to greater productivity, which is a driver of economic growth

Real GDP per capita

is real GDP divided by the population.

Short run growth

is represented by a movement from a point inside the PPF to a point on the PPF

Long run growth

is represented by an outward shift of the entire PPF.

Short run growth

occurs when an economy makes use of existing but underused resources

Long run growth

occurs when an economy finds new resources or finds ways to use existing resources better.

Economic growth

plays a very powerful role in how people live and how standards of living change over time.

production function

shows the relationship between inputs and outputs under existing technology. helps to explain how an entire economy grows.