Chapter 8-Economic Growth Flashcards
Economic Growth
An Increase in real GDP occurring over some time period.
An increase in real GDP per capita occurring over some time period.
Real GDP per capita
Real GDP per Capita= Real GDP/Population (This is important because there are many GDP growths but when you look closer the GDP per Capita is negative)
Rule of 70
Approximate number of years required to double real GDP=70/annual percentage rate of growth
Modern Economic Growth
New inventions and new technologies drive continual economic growth and ongoing increases in living standards.
Institutional Structures that promote modern economic growth
Strong Property Rights- People will not invest if they believe that the government will steal their investments
Patents and copyrights- A strong financial incentive to invent and create.
Efficient financial institutions- Banks as well as stock and bond markets
Literacy and widespread education-Education is needed for technology
Free Trade-Lets the countries specialize
A competitive market system-
4 Supply Factor determinants of economic growth
- Increases in the quantity and quality of natural resources.
- Increases in the quantity and quality of human resources.
- Increases in the supply (or stock) of capital goods.
- Improvements in technology.
These increase the potential size of an economy’s GDP
Demand Factor determinant of economic growth
Households, businesses and governments must also expand their purchases of goods and services so as to provide a market for all the new output that can potentially be produced.
Efficiency Factor determinant of economic growth
To reach its full production potential, an economy must achieve economic efficiency as well as full employment.
Another way to calculate Real GDP
Real GDP= Hours of work X Labor productivity
Labor force participation rate
The percentage of the working age population actually in the labor force.
