Chapter 7 Flashcards
GDP
the total market value of all final goods and services
produced within a society over a certain period of time
intermediate good
a good used in the production process that is not a final good or
service
consumption expenditures
(C)
Consumer purchases
private investment expenditures
(I)
Producer purchases
government purchases
(G)
purchases of newly produced goods and services by local,
state, or federal government
Import
A good or Service bought from a different country
Export
A good or Service sold to a different country
Net Exports
(NX)
Exports - Imports
Trade Deficit
Export < Imports
Trade Surplus
Exports > Imports
Trade Surplus
Y = C + I + G + NX
Industrially Advanced Countries (IAC’s)
high income countries with primarily
market based economies, large stocks of technologically advanced industrial capital,
and a highly educated and skilled workforce (e.g., U.S., Norway, Australia, Germany,
Japan)
Less Developed Countries (LDC’s)
lower income countries which are held back
by some combination of poor economic institutions, undeveloped industrial capital,
and/or an uneducated and unskilled workforce (e.g., India, Ghana, Bangladesh, and
the Democratic Republic of the Congo)
economic development
improvements over time in a society’s quality of life and
living standards
economic growth
sustained increases over time in a society’s value of Real GDP
graphically illustrated by an outward shift of the PPF
measured quantitatively as the percentage increase in Real GDP
GDP growth rate
annual percentage change in the value of real GDP
catch-up effect
conjecture that (all other factors fixed) the growth rates of less
developed countries will exceed the growth rates of developed countries, allowing the
less developed countries to “catch up” over time
Rule of 72
72/X = %
physical capital
machines, building, factories, and other equipment used in the
production process
human capital
– the knowledge, education, skills, experience, work ethic, interpersonal
skills, and other attributes of workers which determine productivity
technology
the application of scientific and engineering principles to the problem
of production
Vicious-cycle-of-poverty hypothesis
conjecture that poor countries will
remain poor since they do not have sufficient resources available to make the
investments in capital which are necessary for economic growth
Capital flight
tendency for the rich in a poor country to invest their wealth in richer countries due to their economic stability
brain drain
– tendency for the most highly talented people from developing
countries to become educated and then move to an already wealthy country
Rule-of-Law
environment in which property rights and contracts are
respected and administered fairly and transparently, without favoritism
countries lacking rule-of-law have difficulty achieving growth
Crony Capitalism
environment in which well-connected unscrupulous
business people use corrupt political systems to their advantage in order to
obtain preferential treatment from government (e.g., government contracts,
subsidies, bailouts, tax loopholes)
