Chapter 24 - Economic growth

Question 1

What is the formula for the rule of 70, and what does it tell us?

Answer 1

t = 70/growth rate - Tells us the amount of time,t, it takes for something to double, given a certain growth rate

Question 2

What causes potential GDP growth?

Answer 2

Growth in labour supply and labour productivity.

Question 3

Which factor causes a movement along the productivity frontier?

Answer 3

Labour supply, as a result of:

1) Average working hours per worker
2) Employment-to-population ratio
3) Working-age populaiton

Question 4

Which factor causes a shift of the productivity frontier?

Answer 4

Labour productivity

Question 5

Name the pre-condition for growth of productivity:

Answer 5

The incentive system created by firms, markets, property rights and money.

Question 6

Once the pre-conditions for growth in productivity are in place, what 3 things influence the pace?

Answer 6

1) Physical capital growth - refers to tools and machinery.
2) Human capital growth - refers to skilled and knowledgeable workers
3) Technological advances