Chapter 7: The Wealth of Nations and Economic Growth Flashcards
Almost any standard indicator of societal well being tends to increase with ________.
wealth
3 facts about the wealth of nations and economic growth
- GDP per capita varies enormously among nations
- Everyone used to be poor
- There are growth miracles and growth disasters
What is the world’s poorest country?
The Democratic Republic of Congo
The distribution of world income tells us that poverty is _______.
normal
Relative to today’s standards. everyone used to be _______.
poor
For most of recorded human history there was no long run growth in real __________.
GDP per capita
What is the rule of 70?
If the annual growth rate of GDP per capita is x% then the amount of time it will take for it to double can be calculated by [ 70/x ]
What is economic growth?
The growth rate of real GDP per capita
What is the most immediate cause of the wealth of nations?
Countries with a high GDP per capita have a lot of physical and human capital per worker and that capital is organized using the best technological knowledge to be highly productive
What are the factors of production?
- Physical capital
- Human capital
- Technological knowledge
- Organization
What is physical capital?
The stock of tools including machines, structures, and equipment
What is human capital?
Tools of the mind;
The productive knowledge and skills that workers acquire through education, training and experience
An investment of time and other resources into your own education or training is an example of ?
Human capital
What is technological knowledge?
The knowledge of how the world works that is used to produce goods and services.
How is technological knowledge increased?
Research and development
Physical capital, human capital, and technology must be combined and organized purposively to be _________.
productive
What is the key to producing and organizing the factors of production?
Institutions that create appropriate incentives
What are institutions?
The rules of the game that structure economic incentives.
This includes laws and regulations as well as organizations that shape human interaction and structure economic incentives
5 institutions of economic growth
- Property rights
- Honest government
- Political stability
- A dependable legal system
- Competitive and open markets
What are property rights?
They are important institutions for encouraging investment in human and physical capital
Under communal property there is little _________ to work.
incentive
What is free riding?
Someone who consumes the benefits of a public good without paying a share of the costs
An under-developed legal system can lead to people not knowing who owns what.
True or false?
True
What does a good legal system do?
- Facilitate contacts
2. Protect property rights
50% of difference in per capita income across countries is explained by differences in ? The other half is explained by a failure to?
Physical and human capital;
Use the capital efficiently
What do competitive and open markets encourage?
The efficient organization of resources
What is economies of scale?
The advantages of large scale production that reduce average cost as quantity increases
Why is it easier for richer countries to continue their growth?
They have more physical and human capital and are more likely to have institutions that allow for it
