3 Production and Growth

Question 1

Productivity

Answer 1

The quantity of goods and services produced from each unit of labour input

Question 2

What is the key determinant of GDP growth?

Answer 2

Productivity

Question 3

Determinants of productivity

Answer 3

Physical capital
Human capital
Natural resources
Technological knowledge

Question 4

What policy interventions can be made to increase productivity

Answer 4

• 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

Question 5

What are the differing views on government and education

Answer 5

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

Question 6

FDI

Answer 6

Foreign direct investment. Capital investment owned and operated by a foreign entity

Question 7

Foreign portfolio investment

Answer 7

Investment financed with foreign money but operated by domestic residents

Question 8

What does a lack of property rights cause?

Answer 8

• impedes the coordinating power of markets
• discourages domestic saving
• discourages investment from abroad

Question 9

What does political instability cause?

Answer 9

• 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

Question 10

How can increasing population help and hinder society?

Answer 10

+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