Ch. 7 - Production + Growth Flashcards
Two Facts about income and growth around the world…
Fact 1: vast differences in living standards around the world
Fact 2: great variation in growth rates across countries
B/c of great variance of growth b/w countries…
not necessarily poor forever (Signapore)
richer can be over-taken by faster growing countries
productivity =
avergae Q of G+S per worker per hour
y =
real GDP = Q of output produced
L =
quantity of labour
y/L =
productivity (output/worker)
when workers are productive real GDP is high and so are incomes (t/f)
t
What determines productivity + growth rates? (4 things)
- level of technology
- physical capital per worker
- human capital per worker
- natural resources per worker
Physical Capital is…
-stock of equipment + structures for G+S production (depicted as K)
Human Capital is…
-knowledge/skills per worker from education, training , experience, etc. (depicted as H)
Natural Resources are…
inputs into production from nature; some countries richer than others (depicted as N)
Technological Knowledge is…
societal understanding of best way to produce G+S (eg. assembly lines) (depicted A)
Production Function for productivity + factors is… (formula)
y = AF (L , K , H, N) productivity = technology x inputs to produce output (labour, physical capital, human capital, natural resources)
incr. K can boost production (t/f). it is called…
true, called investment.
incr investment is a tradeoff b/w _______ + _____ consumption. B/c more capital = fewer consumption goods (due to ___)
current; future; scarcity
Diminishing returns to capital is…
low K gains is _____ country; high K gains is_____ country
as K rises, production and standard of living rise, but incr. is much higher when little amount of K to begin with, otherwise it is very minimal.
-poor; rich
Catch Up Effect
-lower countries having faster growth rates b/c of minimal K (physical capital) invested already. What is invested helps significantly.
To raise K/L gov’t can encourage… (2)
When best?
- foreign direct investment (owned + operated by foreign)
- foreign portfolio investment (owned foreign, operated by local)
- returns flow back to foreign investor.
- best when a poor country can’t save enough to “jump start”
To increase productivity…. (2)
- Human Investment
2. Respect for Property Rights
human Investment incr productivity b/c…
- education makes workers more effective
- health: healthy workers are more productive
Respect for property rights helps productivity b/c…
-there is less investment w/ political instability, corrupt police, or ineffective courts (why invest if its not safe?)
Free trade types: (2)
-which more successful?
- inward oriented policies (avoiding foreign investment)
- generally a fail - outward oriented policies (promote integration into world market)
Technological progress is the main reason living standards rise over time (t/f)
why?
t.
-knowledge is a public good (shared freely)
How do gov’ts encourage technological progress?
patent laws, tax incentives, research grants, etc
Population Growth Effects on Economy (3)
- Stretch Natural Resources
- Diluting the Capital Stock
- Promote Technology Progress
Pop Growth Stretches Natural Resources is…
a Malthus argument; did not account for technological progress and production growth so not as much of a factor
Pop growth Dilutes Capital Stock b/c…
bigger population = higher labour = lower K/L (capital/worker)
-human capital effects: more kids = larger education system strain
Pop. Growth Promotes Technological Progress by…
more ppl = more discoveries (more scientists, engineers, inventors, etc)
-scarcer resources = higher prices = larger incentive to find alternatives
t/f Long Run living standards are not determined by productivity.
f. they are
