Chapter 7: The Wealth of Nations and Economic Growth

Question 1

Almost any standard indicator of societal well being tends to increase with ________.

Answer 1

wealth

Question 2

3 facts about the wealth of nations and economic growth

Answer 2

1. GDP per capita varies enormously among nations
2. Everyone used to be poor
3. There are growth miracles and growth disasters

Question 3

What is the world’s poorest country?

Answer 3

The Democratic Republic of Congo

Question 4

The distribution of world income tells us that poverty is _______.

Answer 4

normal

Question 5

Relative to today’s standards. everyone used to be _______.

Answer 5

poor

Question 6

For most of recorded human history there was no long run growth in real __________.

Answer 6

GDP per capita

Question 7

What is the rule of 70?

Answer 7

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 ]

Question 8

What is economic growth?

Answer 8

The growth rate of real GDP per capita

Question 9

What is the most immediate cause of the wealth of nations?

Answer 9

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

Question 10

What are the factors of production?

Answer 10

1. Physical capital
2. Human capital
3. Technological knowledge
4. Organization

Question 11

What is physical capital?

Answer 11

The stock of tools including machines, structures, and equipment

Question 12

What is human capital?

Answer 12

Tools of the mind;

The productive knowledge and skills that workers acquire through education, training and experience

Question 13

An investment of time and other resources into your own education or training is an example of ?

Answer 13

Human capital

Question 14

What is technological knowledge?

Answer 14

The knowledge of how the world works that is used to produce goods and services.

Question 15

How is technological knowledge increased?

Answer 15

Research and development

Question 16

Physical capital, human capital, and technology must be combined and organized purposively to be _________.

Answer 16

productive

Question 17

What is the key to producing and organizing the factors of production?

Answer 17

Institutions that create appropriate incentives

Question 18

What are institutions?

Answer 18

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

Question 19

5 institutions of economic growth

Answer 19

1. Property rights
2. Honest government
3. Political stability
4. A dependable legal system
5. Competitive and open markets

Question 20

What are property rights?

Answer 20

They are important institutions for encouraging investment in human and physical capital

Question 21

Under communal property there is little _________ to work.

Answer 21

incentive

Question 22

What is free riding?

Answer 22

Someone who consumes the benefits of a public good without paying a share of the costs

Question 23

An under-developed legal system can lead to people not knowing who owns what.

True or false?

Answer 23

True

Question 24

What does a good legal system do?

Answer 24

1. Facilitate contacts

2. Protect property rights

Question 25

50% of difference in per capita income across countries is explained by differences in ? The other half is explained by a failure to?

Answer 25

Physical and human capital;

Use the capital efficiently

Question 26

What do competitive and open markets encourage?

Answer 26

The efficient organization of resources

Question 27

What is economies of scale?

Answer 27

The advantages of large scale production that reduce average cost as quantity increases

Question 28

Why is it easier for richer countries to continue their growth?

Answer 28

They have more physical and human capital and are more likely to have institutions that allow for it