Chapter 9 - Production & Growth Flashcards
The amount of goods and services produced from each hour of a worker’s time is called?
Productivity of labour
What is the “Rule of 70”
To estimate the number of years for a variable to double, take the number 70 and divide it by the growth rate of the variable
Using the ‘rule of 70’, calculate how many years it would take for John’s income to double if he were to experience a 4% increase in income per year?
17.5 Years
Technical Knowledge refers to?
Society’s understanding of the best ways to produce goods and services
Who is capable of experiencing higher growth rates and why:
- Rich countries
- Poor countries
Poor Countries
As for the same investment of capital the resulting output is much greater for a poor country (Rule of diminishing returns)
It is easier for a country to grow fast if it starts out relatively poor. This is referred to as?
The catch-up effect
Trade policies that aim to encourage international trade are known as?
Outward oriented trade policies
Trade policies that avoid/discourage international trade are known as?
Inward orientated trade policies
What is physical capital?
The stock of equipment and structures that are used to produce goods and services
The production function shows the relationship between?
The quantity of inputs used in production and the resulting quantity of output from production
The traditional view of the production process is that capital is subject to?
Diminishing returns
Is technology subject to diminishing returns?
No, it is considered that improvements in technology will always add to productivity (e.g. Online Shopping).
Explain the concept of diminishing returns
The concepts of diminishing returns states that the benefit from an extra unit of capital output declines as the quantity of that input increases. This means that the more capital per worker in an an economy, the smaller the increases in output generated.
Physical capital is subject to diminishing returns. Explain what this means
If workers already have adequate amounts of capital with them to produce goods and services, then when they receive more units of capital to work with, the additional impact is limited.
What is the catch-up effect.
Where a poor country has the ability to grow faster than a rich country due to the higher output it gains from an increase in capital.
