Macroeconomics Chapter 7

Output per worker

Output = A x f (L/L, K/L, H/L, N/L)

realistic form

Output = A x f( L, K, H, N )

Classical form

Output = f( L, K ) same function of available labor or capital

Factors of Production

"N" Land and Natural resources (land and things from the land ex. oil, natural gas, water) "L" Labor (mental and physical talents of people) "H" Human Capital (includes improvements to labor capabilities from training, education, apprenticeships. "K" Physical Capital (all manufactured products that are used to produce other goods and services. machinery use in factories, case registers, communication) "A" Entrepreneurial ability, Technology (being creative in the workplace)

Joseph Schumpeter

"creative destruction" identified "waves of innovation" connected innovation with the downturns or depressions in teh business cycle.

Index of Economic Freedom

10 categories: business, trade, fiscal policy, government size, monetary policy, investment, finance, property rights, corruption, and labor.

BRIC countries

Brazil, Russia, India, China. most notable of high growth rates. Things that changed to result in economic growth. Innovation, simplified tax code, foreign investment.

Technology

Gov't R&D centers and federal Grants. Some of largest research centers in country are gov't funded NSF National Science Foundation

Stable Financial System

Keeps the purchasing power of the currency stake, facilitates transactions and permits credit institutions to arise. Unanticipated inflations or deflations are both detrimental to economic growth.

Production Function

Measures the output that is produced using various combinations of inputs and a fixed level of technology. helps explain how an entire economy grows

Human Capital

Public education and final aid. gov't makes sure everyone has access to a minimum level of education. gov't some say in financial aid, pell grants, loans, taxes.

Technology Impacts

THE major rule in improving productivity, Increase standard of living, increase economic growth.

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 in income.

Increasing Capital to Labor Ratio

The capital employed per worker. A higher ratio means higher labor productivity and, as a result, higher wages. subjected to diminishing returns to capital

Total Factor Productivity

The portion of output produced that is not explained by the number or inputs used in production. captures the factors that influence the overall effectiveness of inputs - natural disasters, new innovations, institutes in place within a country.

Infrastructure

The public capital of a nation, including transportation networks, power-generating plants and transmission facilities, public education institutions, and other intangible resources such as protection of property rights and a stable monetary environment. country's public capital (dams, roads, and bridges, transportation, networks, air and rail lines, power-generation plants and power transmission lines.

real GDP

The total value of final goods and services produced in a country in a year measured using prices in a base year.

More land or Natural Resources

building blocks of production, but not significant driver of economic growth. Countries who have this land have an advantage only if used effectively. new natural resources = higher growth rates.

Competitive Markets and free trade

challenges of gov't is choosing the right mix of policies to keep markets competitive and fair. protect various interest.

The 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. Key driver of wages and incomes

Economic Freedom

make investments and production decisions freely is the Index of Economic freedom

Long Run Growth

occurs when an economy finds new resources or finds ways to use existing resources better. the capacity to produce goods and services increases, leading to long-run growth.

Short Run Growth

occurs when an economy makes use of existing but underutilized resources. is common when countries are recovering from an economic downturn, or when obstacles preventing resources from being fully used are loosened.

Protection of Property Rights

ownership of real property land and buildings. legal system is important to encouraging innovation Patents, copyright, trade makers

Quality of Labor Force

production growth = investment in human capital (improvements to the labor force form investments in skills, knowledge, and overall quality of workers and their productivity. on job training, education.

Rule of 70

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

Physical Capital

public capital and private investment

real GDP per capita

real GDP divided by population. Provides a rough estimate of a country's standard of living. countries divided by its population. measured in constant year dollars. When real GDP Increases = average output per person increases. BEA measures this.

Economic Growth

usually measured by the annual percentage change in real GDP, reflecting an improvement in the standard of living. how people live, how standards of living change over time.

Enforcement of Contracts

without this people are less likely to be willing to enter into contracts. promotes economic growth by ensuring that production and purchasing commitments made by producers and consumers.

Growth of the Labor Force

population growth = increase in labor supply. labor force participation increases. increases in labor force generally leads to greater output but not necessarily more output per person

Thomas Malthus

population increases geometrically, food supply increases arithmetically.