Chapter 7 - Deep Seek

Question 1

What is productivity?

Answer 1

Productivity is the quantity of goods and services produced from each hour of a worker’s time. It is a key determinant of a country’s standard of living.

Question 2

Define physical capital.

Answer 2

Physical capital refers to the stock of equipment and structures (like factories, machines, and tools) used to produce goods and services.

Question 3

What is human capital?

Answer 3

Human capital is the knowledge and skills that workers acquire through education, training, and experience.

Question 4

What are natural resources?

Answer 4

Natural resources are inputs into production provided by nature, such as land, rivers, and mineral deposits.

Question 5

What is technological knowledge?

Answer 5

Technological knowledge refers to society’s understanding of the best ways to produce goods and services.

Question 6

What are diminishing returns?

Answer 6

Diminishing returns occur when the benefit from an extra unit of an input (like capital) declines as the quantity of the input increases.

Question 7

What is the catch-up effect?

Answer 7

The catch-up effect is the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich, due to diminishing returns to capital.

Question 8

What is foreign direct investment (FDI)?

Answer 8

Foreign direct investment is a capital investment that is owned and operated by a foreign entity, such as a factory built by a foreign company.

Question 9

What is foreign portfolio investment?

Answer 9

Foreign portfolio investment is an investment financed with foreign money but operated by domestic residents, such as stocks or bonds purchased by foreigners.

Question 10

What are property rights?

Answer 10

Property rights refer to the ability of people to exercise authority over the resources they own. They are essential for a functioning market economy.

Question 11

What is the formula for GDP per person?

Answer 11

GDP per person = Total GDP / Total Population.

Question 12

What is the formula for productivity?

Answer 12

Productivity = Output (Y) / Labor (L), where Y is real GDP and L is the quantity of labor.

Question 13

What is the rule of 70?

Answer 13

The rule of 70 is used to estimate how long it takes for a variable to double. The formula is: Number of years to double = 70 / Annual Growth Rate.

Question 14

What is the production function?

Answer 14

The production function is: Y = A F(L, K, H, N), where Y = output, L = labor, K = physical capital, H = human capital, N = natural resources, and A = technology.

Question 15

What are the four main determinants of productivity?

Answer 15

The four main determinants of productivity are: Physical capital per worker, Human capital per worker, Natural resources per worker, Technological knowledge.

Question 16

How does higher saving lead to a higher standard of living?

Answer 16

Higher saving leads to more investment in capital goods, which increases productivity and GDP growth. In the long run, this results in a higher standard of living.

Question 17

Why do diminishing returns occur in capital investment?

Answer 17

Diminishing returns occur because as more capital is added, each additional unit of capital contributes less to output than the previous unit, due to limited labor and other factors.

Question 18

How does the catch-up effect work?

Answer 18

Poor countries grow faster than rich countries because they can adopt existing technologies and benefit more from additional capital, leading to rapid productivity gains.

Question 19

What role does education play in economic growth?

Answer 19

Education increases human capital, making workers more productive. It also leads to positive externalities, such as innovation and better health, which further promote growth.

Question 20

How does population growth affect economic growth?

Answer 20

Population growth can increase total output but may reduce GDP per person if capital and resources are spread more thinly. However, it can also lead to more innovation and technological progress.

Question 21

What are the benefits of foreign investment for a country?

Answer 21

Foreign investment increases the capital stock, leading to higher productivity and wages. It also brings in new technology and management practices.

Question 22

Why are property rights important for economic growth?

Answer 22

Property rights ensure that individuals and businesses can securely own and use resources, encouraging investment, innovation, and economic activity.

Question 23

How does free trade promote economic growth?

Answer 23

Free trade allows countries to specialize in what they produce best, leading to more efficient production and higher output. It also encourages the spread of technology and ideas.

Question 24

What is the opportunity cost of investing in capital?

Answer 24

The opportunity cost of investing in capital is the loss of current consumption, as resources are diverted from producing consumer goods to producing capital goods.

Question 25

Can a country over-invest in capital or human capital?

Answer 25

Yes, a country can over-invest if the returns on additional investment (capital or human capital) are lower than the benefits of current consumption. For example, if workers are over-educated for available jobs, the investment in human capital may not yield sufficient returns.

Question 26

What is the relationship between health and economic growth?

Answer 26

Healthier workers are more productive, and higher incomes allow for better health care. This creates a virtuous cycle where health and wealth reinforce each other.

Question 27

How does technological progress affect productivity?

Answer 27

Technological progress allows society to produce more output from the same inputs, increasing productivity and living standards.

Question 28

What is the role of government in promoting economic growth?

Answer 28

Governments can promote growth by: Encouraging saving and investment, Providing education and health care, Protecting property rights, Promoting free trade, Supporting research and development.

Question 29

What is the impact of trade restrictions on economic growth?

Answer 29

Trade restrictions reduce economic growth by limiting specialization, reducing competition, and preventing the spread of technology and ideas.

Question 30

How does population growth interact with natural resources?

Answer 30

Population growth can strain natural resources, but technological progress often helps mitigate this by improving resource efficiency and finding alternatives.

Question 31

If a country’s GDP grows at 3.5% per year, how long will it take for its GDP to double?

Answer 31

Using the rule of 70: 70 / 3.5 = 20 years. It will take 20 years for GDP to double.

Question 32

Suppose a country increases its saving rate. What happens to its economic growth in the short run and long run?

Answer 32

In the short run, higher saving leads to more investment, increasing capital stock and boosting economic growth. In the long run, growth slows due to diminishing returns, but the level of income and productivity remains higher.

Question 33

Why might a poor country grow faster than a rich country?

Answer 33

Poor countries can grow faster due to the catch-up effect. They can adopt existing technologies and benefit more from additional capital, leading to rapid productivity gains.

Question 34

How does brain drain affect economic growth in poor countries?

Answer 34

Brain drain, where highly educated workers emigrate to rich countries, reduces human capital in poor countries, slowing economic growth.

Question 35

What are the externalities of education?

Answer 35

Education creates positive externalities by increasing overall knowledge, innovation, and productivity in society, benefiting even those who are not directly educated.