Chapter 9

Question 1

Real GDP per capita and it is a measurement of a countries_____ _____ over time and ____ of living

Answer 1

output per person, real GDP/population size, measurement of countries economic growth over time and standard of living

Question 2

why do we focus on Real GDP per capita for long term economic growth

Answer 2

isolate effect of changes in population ex population increase, cost of living decrease

Question 3

What did WW2 allow in terms of growth

Answer 3

economic boosts, increase spending, increase production output

Question 4

Growth Rates

Answer 4

long term process, real GDP per capita grows a few percent per year

Question 5

rule of 70

Answer 5

of years for real GDP per capita or any variable to double

Question 6

rule of 70 equation

Answer 6

of years for variable to double= 70/ annual growth rate of variable, (only applied to positive growth rate)

Question 7

ex: how many years did it take canadian economy to double 3 times with an annual growth rate of 2%

Answer 7

70/2=35 years to double once

35x3=105

Question 8

How much did GDP per capita increase during this time

Answer 8

by a factor of 8 2x2x2=8

Question 9

large sustainable increase in GDP per capita is due to

Answer 9

labour productivity

Question 10

the determinants of economic growth (3)

Answer 10

rising productivity, high savings, investment spendings,

Question 11

sustained economic growth

Answer 11

amount of output produced by average worker increases steadily

Question 12

labour productivity and equation

Answer 12

output per worker or hour, GDP/ #of people working

Question 13

factors of long term growth 3

Answer 13

human and physical capital, technology

Question 14

aggregate production function

Answer 14

Y=AxF(K,L,H)

Question 15

per worker production function

Answer 15

Y/L=AxF(K/L,H/L)

Question 16

what do variables in production equation stand for

Answer 16

Y=GDP
A=Technology
F=aggregate production function
K=Physical Capital
L=Labour
H=Human Capital

Question 17

how does aggregate real output for economy increase

Answer 17

when either of the factors improves

Question 18

MPk positive productivity of physical capital

Answer 18

productivity is increased from small increase in physical capital

Question 19

What happens if we hold total factor productivity constant or technology constant

Answer 19

production would show how technology is increasing production, vise-versa

Question 20

growth accounting

Answer 20

estimate contribution of each factor in aggregate production function to growth

Question 21

total factor productivity

Answer 21

amount of output that can be produced with given amount of factor inputs

Question 22

Diminishing returns to physical capital (theory works for all inputs)

Answer 22

holding all else constant, each successive increase in KL leads to a diminishing smaller increase in productivity

Question 23

How can diminishing returns disappear

Answer 23

other factor inputs increase ex human capital, technology, or both

Question 24

Natural Resources

Answer 24

in the past were a large role, modern world is now switched human, physical and technology

Question 25

Is long term economic growth possible with finite resources

Answer 25

yes, our factor inputs are vital to finding new ways to sustain our economic growth, ex finding alternatives to natural resources

Question 26

Do we need lots of resources to have increase in factor outputs

Answer 26

no

Question 27

Why do growth rates differ amongst countries (3)

Answer 27

depends on a countries

1. private savings and investment spendings (K/L)
2. Education investments (H/L)
3. Research and development funding (A)

Question 28

Role of Government in Growth (4)

Answer 28

creating environment that promotes economic growth

1. Subsidies to infrastructure, education and R&D
2. Maintaining a well-functioning financial system
3. Protection of Property Rights
4. Political Stability and Good Governance

Question 29

1. subsidies to infrastructure, education and R&D

which is which for H/L, K/L, A ????

Answer 29

infrastructure-physical capital
education- human capital
R&D- technology

Question 30

2. maintaining a well functioning regulated financial system

Answer 30

principle in which savings are channeled into investment spendings

Question 31

3. protection of property rights

Answer 31

patents, owners rights of valuables

Question 32

4. Political Stable and Good Governance

Answer 32

Laws, Institution to enforce laws

Question 33

Convergence Hypothesis

Answer 33

Low GDP per capita countries will catch up with higher GDP per capita countries

Question 34

Left Behind Growth (3)

Answer 34

• not all individuals and groups benefit from growth
• real GDP tends to translate to real median income
• growth goes to rich so median and poorer growth decline