Ch. 7 The Wealth of Nations & Economic Growth Flashcards
Why do economists care about growth?
It is correlated with lots of good things like better health and job diversity. So we want economies to grow.
What is the rule of 70?
It takes an economy roughly 70/growth rate year to double in size
What are the factors of production?
- Physical Capital: stock of tools, structures and equip
- Human capital: productive knowledge and skills that workers acquire through education, training, and experience
- Technological Knowledge: Knowledge about how the world works that is used to produce goods and services
Why do incentives matter?
To get good growth you need strong institutions that help support that.
What are the 5 different institutions?
- property rights
- honest govt.
- political stability
- a dependable legal system
- competitive and open markets
What are property rights? and what do they do?
the right to benefit from one’s effort. Without it effort is divorced from reward and free riders become a problem.
- provide incentives to word hard
- encourage investment in physical and human capital
- encourage technological innovation
What would happen if we didn’t have an honest government?
- Property rights would be meaningless unless government guarantees it
- Corruption will bleed resources away from productive entrepreneurs
- Corruption will take resources away?
What is political stability and what does it result in?
It is the change of government within the rule of law. This results in uncertainty which leads to less investment in physical and human capital.
What does a dependable legal system do?
- facilitates contracts
2. protects property including government
What do competitive and open markets do?
- Encourage the efficient organization of resources
2. About half the differences in per capita income across countries is explained by a failure to use capital efficiently
What did the industrial revolution do?
Brought large sale production and important innovations in transportation
