Chapter 9: Economic Growth Flashcards
Define ‘Productivity’.
Output produced per worker.
Define ‘Physical capital’.
The stock of equipment and structures that allow for production of goods and services.
Define ‘Human capital’.
The set of skills, knowledge, experience, and talent that determines the productivity of workers.
Define ‘Convergence theory’.
The theory that countries that start out poor will eventually grow faster than rich ones, but will eventually converge to the same growth rate.
Define ‘Investment trade-off’.
A substitution of current consumption or investment in physical capital for future production.
Define ‘Domestic savings’.
Savings for capital investment that come from within a country; equals domestic income minus consumption spending.
Define ‘Foreign direct investment (FDI)’.
Investment when a firm runs part of its operation abroad or invests in another company abroad.
How do you calculate the rate of real GDP growth?
Real GDP per capita growth rate = nominal GDP growth rate - inflation - population growth rate.
Recall: how do you get a growth rate?
Ex. (nomGDP_2013 - nomGDP_2012) / nomGDP_2012 x100
What are the two equations in the Rule of 70?
- GDP_yearA = GDP_yearB x (1+growth rate)^(A-B)
2. Years until income doubles = 70 / real growth rate
What are the factors that influence labour productivity?
Physical capital, human capital, technology, and natural resources.
There is a difference between a country’s level o income and its rate of growth. Why are each important?
Level matters because it tell how wealthy a country currently is.
Rates matter because they tell how quickly a country is increasing its wealth.
Give examples for and against convergence theory.
For: Four East Asian countries that experienced incredible growth since the 1960s started from low levels o physical and human capital, but were well positioned to take advantage of technologies and capital flows from wealthier counties.
Against: Even though half a century ago most African countries had similar o even lower levels of physical an human capital than East Asia, they have not experienced high growth rates.
Funds to pay for capital investment can come either from domestic savings or from foreign direct investment (FDI) from outside the country. What are some policies that can promote economic growth?
- Education
- Public health systems
- Public policy that encourages technological development
Explain how good governance and economic openness la the foundations for growth.
Enforceable laws and effective, trustworthy government services are critical to a well-functioning economy. The most important is the provisions of property rights, giving people the ability to have control over the resources they own.
