Chapter 25

Question 1

Economic Growth

Answer 1

Expansion of the country’s potential GDP or national output. Also, when the PPF shifts outward.

Question 2

The Four Wheels of Growth

Answer 2

• Labor
• Natural Resources
• Technology
• Capital

Question 3

Human Resources

Answer 3

• Size of labor force.

- Quality of labor (education and skills).

Question 4

Natural Resources

Answer 4

Oil, gas, land,…..

Question 5

Capital

Answer 5

Physical assets:
- Machinery
- Factories.
Social Overhead Capital.

Question 6

Technology

Answer 6

Know-how.

Question 7

Capital-labor Ratio

Answer 7

Quantity of capital per labor.

K / L

Question 8

Capital Deepening

Answer 8

Increase in capital-labor ratio causing an increase in output per worker. Increasing capital only does NOT necessarily mean capital deepening.

Question 9

Productivity

Answer 9

Ratio of output to input.

Question 10

Social Overhead Capital

Answer 10

Investments undertaken by the government, that are necessary for the private sector. (e.g. roads, water and public-health measures)

Question 11

Aggregate Production Function

Answer 11

Relationship between capital per worker and output per worker.

Question 12

Impact of capital deepening in the neoclassical growth model

Answer 12

Capital deepening occurs when capital grows faster than labor force. In the absence of technological changes, the output per worker, marginal product of labor and real wages will grow. Diminishing returns on capital and therefor decline in rate of return on capital.

Question 13

%Q

Answer 13

%Q = %K (S_K) + %L (S_L) + T.C.