Chapter 10

Question 1

Growth rate of real GDP per capital

Answer 1

Describes the change in actual purchasing power for each person

Real GDP per capital growth rate = nominal GDP growth rate -inflation rate - population growth rate

Question 2

Compounding

Answer 2

Interest payments added to account and adding interest

Results in total changes in GDP over time that are bigger than the annual growth rate would suggest

Question 3

Productivity

Answer 3

Output produced per worker

Question 4

Factors that determine productivity

Answer 4

1. Physical capital
2. Human Capital
3. Natural Resources
4. Technology

Question 5

Physical Capital

Answer 5

The stock of equipment and structures that allow for production of goods and services

Question 6

Human Capital

Answer 6

The set of skills, knowledge, experience, and talent that determines the productivity of workers

Question 7

Natural Resources

Answer 7

Production inputs that come from earth

Question 8

Renewable Resources

Answer 8

Can be replenished naturally over time.

Question 9

Non-renewable resources

Answer 9

Coal, oil and gold. Cannot get replenished

Question 10

Production function

Answer 10

An equation that captures the relationship between the quantity of inputs and the resulting quantity of outputs

Question 11

Growth accounting

Answer 11

-Tells us that the growth rate of GDP is equal to the growth rate of technology plus the growth rates of capital and labour, weighted by their shares of output
-offers a way to estimate the importance of technology in economic growth
Gy= growth rate of output
Ga=growth rate of technology
Gk=growth rate of capital
GL=growth rate of labour
a=the share of GDP that is distributed to the owners of capital
1-a= the share of output that is distributed to labour

Question 12

Decreasing marginal returns

Answer 12

Countries that start with very little physical capital will get a higher return from adding a unit of capital than will a country that starts at a higher initial level

Question 13

Investment trade off

Answer 13

A reduction in current consumption to pay for the investment in capital intended to increase future production

Question 14

Domestic savings

Answer 14

Savings for capital investment that come from within a country; equals domestic income minus consumption spending

Question 15

Foreign direct investment (FDI)

Answer 15

Occurs when a firm runs part of its operation abroad or invests in another company abroad