Chapter 6: Economic Growth Flashcards
What is economic growth?
The expansion of production possibilities.
What does the growth rate represent?
The annual percentage change of a variable.
How is the standard of living measured?
By real GDP per person, which is real GDP divided by the population.
What can sustained growth of real GDP per person achieve?
It can transform a poor society into a wealthy one.
How do you calculate the time it takes for a variable to double?
Using the Rule of 70.
What does the Rule of 70 state?
The number of years it takes for a variable to double is approximately 70 divided by the annual percentage growth rate of the variable.
What was the average annual growth rate of real GDP per person in Canada from 1926 to 2016?
2.0 percent.
Which country had the fastest growth rate before 1990?
Japan.
How has Mexico’s growth rate compared to Canada’s?
It has been lower than that of Canada.
Which Asian economies have real GDP per person greater than Canada?
Hong Kong and Singapore.
What increases potential GDP?
An increase in population or an increase in labour productivity.
What happens to potential GDP per hour of work with an increase in population?
It decreases due to diminishing returns.
What is labour productivity?
The quantity of real GDP produced by an hour of labour.
What factors can increase labour productivity?
- An increase in physical capital
- An increase in human capital
- An advance in technology
What is the effect of increased labour productivity on the demand for labour?
It increases the demand for labour.
What are the three growth theories studied?
- Classical growth theory
- Neoclassical growth theory
- New growth theory
What does classical growth theory suggest about real GDP growth?
It is temporary and leads to a population explosion that brings real GDP per person back to subsistence level.
What is the implication of neoclassical growth theory?
Real GDP per person grows due to technological change that induces saving and investment.
What does new growth theory posit about real GDP per person?
It grows because of choices made in the pursuit of profit.
What is a key characteristic of knowledge in new growth theory?
Knowledge is capital that is not subject to the law of diminishing returns.
According to new growth theory, what drives innovation?
Profit incentives.
Fill in the blank: The dismal conclusion of classical growth theory is a direct consequence of the assumption that the population _______ if real GDP per hour of labour exceeds the subsistence level.
explodes.
True or False: Neoclassical growth theory implies that growth rates and income levels per person will converge globally.
True.
