Chapter 12 Flashcards
what is rule of 70
Rule of 70 is the estimated time for a variable to double
What is the formula for calculating the growth rate?
growth rate = (current value / past value ) ^ 1/(# of periods) - 1
What is productivity in the context of economic growth?
Productivity is the quantity of goods and services produced per unit of labor input. Growth in productivity is key to improving living standards.
What are the main determinants of productivity?
Physical capital per worker: Stock of equipment and structures used in production.
Human capital per worker: Knowledge and skills acquired through education and training.
Natural resources per worker: Inputs like land and minerals.
Technological knowledge: Understanding of the best production methods (e.g., assembly lines, computers).
What policies can governments use to increase productivity and living standards?
Saving and investment: Invest resources to build capital goods.
Investment from abroad: Foreign direct investment (FDI) and foreign portfolio investment.
Human capital: Education, health, and nutrition.
Property rights & political stability: Protect contracts and reduce corruption.
Free trade: Enables countries to acquire goods they can’t produce.
Research and development (R&D): Encourage innovation.
Population growth: More workers can lead to higher output, but may strain resources.
What is the diminishing returns concept in economic growth?
Diminishing returns occur when the stock of capital rises and the additional output produced by each new unit of capital decreases over time.
What is the catch-up effect?
The catch-up effect refers to the tendency for poorer countries to grow faster than wealthier countries because they have lower starting levels of productivity and capital. Small increases in capital can lead to significant growth in output.
