Chapter 25: Production and Growth Flashcards
Real GDP per person
The quantity of goods and services available for the average individual in the economy
Growth rate
The annual percentage change in output
Physical capital (K)
The stock of equipment and structures used to produce output
Factors of production
Inputs used in production, such as labor, capital, and natural resources
Human capital (H)
The knowledge and skills that workers acquire through education, training and experience
Natural resources (N)
Inputs into production provided by nature
Renewable resource
Natural resource that can be reproduced
Nonrenewable resource
Natural resource that is limited in supply
Technological knowledge
A society’s understanding about the best ways to produce goods and services
Production function
Y = A F(L, K, H, N)
The relationship between inputs and outputs from production
Constant returns to scale
A production process where doubling all of the inputs
doubles the output
=> All inputs x2 <=> output x2
Diminishing returns
When the incremental increase in output declines as equal increments of an input are added to production
Catch-up effect
The property that poorer countries tend to grow more rapidly than richer countries
(poor country growth quickly)
Foreign direct investment
Capital investment owned and operated by foreigners
Foreign portfolio investment
Capital investment financed with foreign money but
operated by domestic residents
Infant-industry argument
Restricting international trade to protect fledgling domestic industry from foreign competition
Inward-oriented policies
Policies that increase international trade restrictions
Outward-oriented policies
Policies that decrease international trade restrictions
Public good
A good that we may all use at the same time without diminishing another’s benefits
Productivity
The quantity of goods and services produced from each unit of labor input
Externality
When the actions of one person affect the well-being of a bystander
Property rights
The ability of people to exercise control over their resources
Political stability
The durability and integrity of a current government regime
