Chapter 11 - Economic Growth Flashcards
Economic Growth
The percentage change in real per capita GDP
Life Indication
Measure of well-being beyond GDP
What is the most important growth rate that we consider?
Real GDP per capita
What do we need to take into account in order to have an accurate growth rate?
Inflation and population growth
What is the equation to find economic growth?
%Δ in nominal GDP − %Δ price level − %Δ population
What is the equation to find real GDP growth?
Nominal GDP growth - inflation
What is a common mistake in reporting international economic growth statistics?
The terms can sometimes get mixed up
What’s the Rule of 70?
If the annual growth rate of a variable is X%, the size of that variable doubles every 70/x years
GDP in Brazil has grown rapidly in recent years. But historically Brazil is a country that has struggled with inflation rates.
Nominal GDP growth rate - 15.73%
GDP deflator growth rate - 8.23%
Population growth rate - 0.9%
Question: What was the rate of economic growth for Brazil in 2010?
6.6%
GDP in Brazil has grown rapidly in recent years. But historically Brazil is a country that has struggled with inflation rates.
Nominal GDP growth rate - 15.73%
GDP deflator growth rate - 8.23%
Population growth rate - 0.9%
Question: If Brazil continues to grow at 6.6% per year, how long will it take to double the level of per capita real GDP?
10.6 years
What are the three factors of economic growth?
- Resources
- Technology
- Institutions
Does having more resources lead to more or less output?
More
The period in time in which per capita GDP for the world started to increase faster than it had in the rest of history began during what years?
1800s
What year did the U.S break out of poverty?
1900s
If the annual growth rate of an economy is 7%, how long will it take for income to double?
10 years
What is another name for resources?
Factors of production
What are resources?
They are the inputs used to produce goods and services
What are the three major categories that resources is divided up into?
- Natural Resources
- Human Capital
- Physical Capital
List some examples of natural resources
Coal, physical land, geography
List some examples of capital
Computers, bridges and roads, factories
What is capital?
The tools and equipment used in the production of goods and services
What is human capital?
It is the resource represented by the quantity, knowledge, and skills of the workers in an economy
What does economic growth require?
More output per capita
What is effective labor?
Labor adjusted for training and education
For each policy listed below, which resource is the primary focus?
- international loans for infrastructure like roads, bridges, and dams
- mandated primary education
- restrictions on the development of forested land
- population controls
- international aid for construction of a shoe factory
- Physical Capital
- Human Capital
- Natural Resources
- Physical Capital per capita
- Physical Capital
Early contribution to growth theory focused on the role of what?
The role of physical capital
What are the two important dimensions of human capital?
- The knowledge of the workers
2. The skills of the workers
What is the knowledge available for the use of production?
Technology
What does technological advancements introduce?
New techniques or methods firms can use to produce more for less
When does economic growth occur?
When resources and technology work together
What is an institution?
A significant practice, relationship, or organization in a society
List the important institution for economic growth
- Political stability & rule of law
- Private property rights
- Stable money & prices
- Competitive markets
- Efficient taxes
- International trade
- Flow of funds across borders
What does private property rights entail?
The rights of individuals to own property, to use it in production, and to own the resulting output
What is the single greatest incentive for voluntary production?
Private property rights
What is a disincentive for investment?
Political instability
What is crucial for economic growth?
Consistent and trustworthy enforcement of a nation’s laws
What does international trade do?
It creates value and allows countries to consume goods they cannot produce on their own
What happens if you put restrictions on the flow of capital across borders?
You hurt domestic firms as they are relegated to seeking funds from solely domestic savers
