3 Production and Growth Flashcards
Productivity
The quantity of goods and services produced from each unit of labour input
What is the key determinant of GDP growth?
Productivity
Determinants of productivity
Physical capital
Human capital
Natural resources
Technological knowledge
What policy interventions can be made to increase productivity
- tax incentives (e.g ISA’s) which encourage saving and therefore increasing capital investment
- public education and subsidies to training in order to promote human capital
- publicly operated research institutions and patent systems to encourage R&D
What are the differing views on government and education
Mainstream view: centralised investments in R&D are useful as well as public schooling
Alternative view: no one can predict the next technological breakthrough so it is hard to know what education is important in the future. Therefore public education is a form of brainwashing
FDI
Foreign direct investment. Capital investment owned and operated by a foreign entity
Foreign portfolio investment
Investment financed with foreign money but operated by domestic residents
What does a lack of property rights cause?
- impedes the coordinating power of markets
- discourages domestic saving
- discourages investment from abroad
What does political instability cause?
- A threat to property rights
- revolutions and coups
- residents have less incentive to save, invest, and start new businesses
- foreigners have less incentive to invest
How can increasing population help and hinder society?
+GDP increases as population increases
-productivity per worker decreases
-puts more pressure on natural resources
+could lead to better technological progress since more people are around to innovate