chap 7

Question 1

productivity

Answer 1

the quant of g/s produced from each hour of a worker’s time

can explain diffs in /capita GDP and growth rates

influences standard of living

Question 2

4 ways productivity is determined

Answer 2

1. physical capital/worker
2. human capital/worker
3. natural resources/worker
4. technological knowledge

Question 3

human capital

Answer 3

the knowledge and skills workers gain via education and training

i.e. WHIMIS

if skills inc, productivity inc

Question 4

natural resources

Answer 4

inputs into production of g/s provided by nature

renewable - replenished i.e. trees

nonrenewable - i.e. oil

diffs in natural resources impact SOL

Question 5

physical capital

Answer 5

the stock of equipment and structures to produce g/s

productivity up if workers have tools

Question 6

technological knowledge

Answer 6

society’s understanding of best ways to produce g/s

proprietary: known only by comp that discovers

patent: exclusive rights to manufacture

Question 7

tech knowledge vs human capital

Answer 7

tech knowledge is understanding of world

human capital is addition of knowledge to work force

Question 8

production function

Answer 8

explains determinants of Y (real gdp)

Y = AF (L, K, H, N)

a = available production tech

f - function of

k - capital

l - labour

h - human capital

n - natural resources

Question 9

constants return to scale

Answer 9

if the inputs change by a %, the output also changes

i.e. when input doubles, so does output

Question 10

productivity

Answer 10

output/worker –> Y/L

if ANY factor (K, H, N) increases, it INC Y/L

Question 11

ways to inc productivity and SOL

Answer 11

• invest abroad
• encourage saving and investment
• r and d
• education
• health
• free trade
• political stability

Question 12

encourage saving and investment

Answer 12

tradeoff b/w devoting resources to capital vs g/s

CAPITAL IS A FOP, can be produced

if produce capital goods, use it to make MORE g/s

should devote resources to capital goods instead of consumption goods

by inc savings, less resources go to consumption goods and more for capital

Question 13

what happens when capital stock inc

Answer 13

gdp inc

Question 14

diminishing returns

Answer 14

benefit from an extra unit of input decreases as quantity of input increases

eventually, as savings up and productivity up, gdp growth plateau

Question 15

marginal product of capital

Answer 15

MP(k) = delt TP/ delt K

TP = total product/output
K = capital

shows change in total product from 1 unit inc in capital

Question 16

catch-up effect

Answer 16

originally poor countries grow faster than rich ones, bcs benefit more from capital accumulation

Question 17

investment from abroad

Answer 17

returns from foreign investment go to the countries that supplied the funds

beneficial from poor countries to gain capital

Question 18

education

Answer 18

gov investing in human capital, raises worker’s wage by 10%

brain drain: immigration of educated workers to rich countries for higher salary

Question 19

health and nutrition

Answer 19

productivity inc w healthy workers

poor countries are poor bcs not healthy and v.v., vicious cycle

Question 20

property rights and political stability

Answer 20

property rights: the ability of ppl to exercise authority over resources they own
- threatened by political instability
- economy less efficient when ppl fear assets being taken

Question 21

free trade

Answer 21

inward-oriented policies: raise SOL by avoiding interacting w countries i.e. tariffs

outward-oriented policies: promote integration w economy i.e. free trade

free trade inc productivity and SOL

Question 22

R&D

Answer 22

tech progress main reason of inc SOL

knowledge is a public good, sharing ideas inc productivity of many

Question 23

3 effects of pop growth

Answer 23

1. stretching natural resources
   - means more labour AND consumers
   - malthus said pop growth strains society’s sustainability, but SOC has inc bcs of tech progress
2. diluting capital stock
   - bigger pop = higher L = lower K/L = low productivity and SOL
   - in countries w fast pop growth, education dec
3. promoting tech progress
   - more ppl = more scientists
   - through history, more pop areas have faster growth