econ 213 ch 7- economic growth
thomas malthus
-argued that society was doomed to poverty, as population increased geometrically, while food supply grew arithmetically -led to describe economics as the dismal science
year-over-year rate
-compares gdp at the current quarter with the previous year -provides trend in growth for the entire year
catch up effect
-describes why developing countries may initially grow faster than developed countries -developing countries can use existing technologies to make their inputs more productive, while developed countries must innovate to increase growth
capital-to-labor ratio
-measures the amount of physical capital available per worker -higher ratio equals greater labor productivity
total factor productivity
-measures the portion of output that is not explained by the amount of inputs used -captures the external effects influencing productivity of all inputs
long-run growth
-occurs when an economy finds new resources or finds ways to use existing resources better -ex: discovery of huge natural gas deposits
short-run growth
-occurs when an economy makes use of existing but underutilized resources -common during recovery from a recession
annualized rate
-the quarterly change in GDP is multiplied by 4 -highlights seasonal fluctuations in growth
-land and natural resources -labor (and human capital) -physical capital -technology (entrepreneurial ability and ideas)
4 factors of production
Human capital (H)
Improvements to labor from training and education
technology (A)
___ enhances the productivity of all physical resources
-contributing to physical capital, human capital, and technology -enforcing contracts, protecting property rights, and maintaining a stable financial system -promoting free and competitive markets
a government can influence the economic growth in a country by: (3 things)
compounding
allows small rates of growth to turn into substantial increases in income over time
labor productivity
amount of goods/services produced by a typical worker in a typical hour of labor
diminishing returns to capital
catch-up effect is subject to:
OUTPUT = f (L,K)
classical form of production function (labor and capital)
higher
countries with higher economic freedom have a ___ average per capita GDP
diminishing returns
each additional unit of capital increases output by a positive but smaller amount
1. reduced poverty rates 2. improved health and longer life expectancies 3. greater investment in education and technology
economic growth factors that contribute to standard of living:
real gdp and real gdp per capita
economic growth is most commonly measured by: (2 things)
maintaining a country's infrastructure
ensures efficient transport of goods and services
long-run growth
expansion of the PPF
1. improve its labor productivity 2. have a larger percentage of the population working
for a country to increase its standard of living, it must either:
increases in a country's standard of living
if real GDP grows faster than population over time, it leads to:
OUTPUT = A * f(L, K, H, N)
incorporating all factors of production into production function
land and natural resources (N)
land and raw resources from the land
physical capital (K)
manufactured items used to produce goods and services
production function
measures how an economy turns inputs into outputs using existing technology
Labor (L)
mental and physical talents
short-run growth
movement toward a PPF
-good governance (democracy w/ free/open elections, fair tax system and prudent spending) -capitalist, market-based economic system -solid foundation of government oversight, protection, and partnership -foster free and fair trade -encourage investment in infrastructure, human and physical capital, R&D
policies effective for economic growth:
economic growth
primary factor in explaining how well people live (standard of living)
Y/L = Af [ (K/L)(H/L)(N/L) ]
production function
wages and incomes
productivity is the key driver of:
how effectively inputs are converted to outputs
productivity measures:
(real GDP/# of workers) * (# of workers/population)
real GDP/population = ?
real gdp per capita
real gap divided by population
70/annual growth rate = number of years for value to double
rule of 70
entrepreneurship/technology (A)
the ability to use resources to produce goods and services
labor productivity
the ratio of the output of goods and services to the labor hours used to produce that output
-natural disasters -new discoveries or innovations -changes in a country's institutions
total factor productivity includes factors such as:
real gdp
total output in a year measured in constant-year prices
productivity
what affects growth of real GDP?
because US workers are extremely productive
why is the US such a wealthy country?