Chapter 7 : Long-Run Economic Growth : Sources and Policies

Question 1

Industrial Revolution :

Answer 1

The application of mechanical power to the production of goods, beginning in England around 1750

Question 2

Economic growth model :

Answer 2

Explains growth rates in real GDP per capita over the long run

Question 3

Labour productivity :

Answer 3

Quantity of goods & services that can be produced by 1 worker or by 1 hr of work

Question 4

What are the 2 factors that determine labour of productivity?

Answer 4

1. Quantity of capital available to workers
2. Level of tech

Question 5

Technological change :

Answer 5

Change in the quantity of output firms can produce using a given quantity of inputs

Question 6

What are the 3 main sources of tech change?

Answer 6

1. Better machinery and equipment
2. Increases in human capital
3. Better means of organizing and managing production

Question 7

Per-worker-production function :

Answer 7

The relationship between real GDP per hour worked and capital per hour worked, holding the level of tech constant

Question 8

New growth theory :

Answer 8

A model of long-run economic growth that emphasizes that tech change is influenced by economic incentives and so is determined by the working of the market system

Question 9

Patent

Answer 9

Gives a firm the exclusive legal right to a new product for a period of 20 yrs from he date the patent application is filed w the gov.

Question 10

What are the 2 economists views?

Answer 10

1. The optimistic view
2. The pessimistic view

Question 11

Catch-up :

Answer 11

The prediction that the level of GDP per capita in poor countries will grow faster than in rich countries.

Question 12

4 key factors why many low-income countries growing so slowly? :

Answer 12

1. Failure to enforce the rule of law
2. Wars and revolutions
3. Poor public education and health
4. Low rates of saving and investment

Question 13

Rule of law :

Answer 13

The ability of a gov to enforce the laws of the country, particularly with respect to protecting private property and enforcing contracts

Question 14

Foreign direct investment :

Answer 14

The purchase or building by a corporation of a facility in a foreign country.

Question 15

Foreign portfolio investment :

Answer 15

When an individual or a firm buys stocks or bonds issued in another country

Question 16

The keys to higher living standards :

Answer 16

1. Establish the rule of law
2. Provide basic education and health care for the population, & integrate women into the economy
3. Increase the amt of capital per hour worked
4. Adopt the best tech
5. Participate in the global economy

Question 17

Formula to calculate average annual growth rate for a period:

Answer 17

sum of the growth rate for each yr / # of growth rate yrs

Question 18

why does growth rate matter

Answer 18

• when a country sustains high growth rates, life expectancy at birth increases
• high growth rates coincide with improved living standards
• high levels of sustained economic growth reduce infant mortality

Question 19

Brain drain :

Answer 19

When well-educated individuals find very few opportunities in their own developing countries, and leave for industrial countries.