Economic Growth

Question 1

Economic growth

Answer 1

a change in a country’s output or income that leads to an improvement in the standard of living. Is measured by the increase in real GDP and real GDP per capita. In the US is calculated by Bureau of Economic Analysis. Leads to lower poverty rates and longer life expectancies.

Question 2

Compounding

Answer 2

The ability of growth to build on previous growth. Allows income, GDP, debts to increase over time. Small differences in growth rates translate into large differences in output over time.

Question 3

Rule of 70

Answer 3

Provides an estimate of the number of years for a value to double. Number of years to double in value=70/growth rate

Question 4

When does the short-run growth occur?

Answer 4

It occurs when an economy makes use of existing but under-utilised resources. Is common when countries are recovering from an economic downturn or when obstacles preventing resources from being fully used are loosened.

Question 5

When does long-run growth occur?

Answer 5

It occurs when an economy finds new resources or improves ways to use existing resources. Capacity to produce goods and services rise, leading to long-run growth.

Question 6

4 factors of production

Answer 6

• land N - land and natural resources
• labor L - human capital H, improved by education or training
• capital K - manufactured goods used in the production process
• entrepreneurial ability A - ideas and tech that is developed

Question 7

Production function

Answer 7

Relationship between the amount of inputs used in production and the amount of outputs produced. Vary by firms, etc. Output = Axf(L, K, N, H)

Question 8

Output per person

Answer 8

Adjust the production function for changes in population growth. Having more physical capital per person will increase the productivity of labor. Output per worker = Axf(L/L, K/L, H/L, N/L)

Question 9

Productivity

Answer 9

It refers to how effectively inputs are converted into outputs. Can also be defined as production per worker, or production per hour worked, or GDP per capita. Related to living standards

Question 10

Labor productivity

Answer 10

The ratio of the output of goods and services to the labor hours devoted to the production of that output

Question 11

What should be done for economic growth?

Answer 11

Countries must expand the quantity and quality of labor

Question 12

Investment in human capital

Answer 12

Investment in education and on-the-job training

Question 13

How productivity of labor can be increased?

Answer 13

Increase in land and natural resources, the quality of force, capital-to-labor ratio, technology

Question 14

Capital-to-ratio

Answer 14

The capital employed per worker. A higher ratio means higher labor productivity and, as a result, higher wages

Question 15

Diminishing returns to capital

Answer 15

Each additional unit of capital provides a smaller increase in output than the previous unit of capital. Powerful contributor to productivity

Question 16

Catch-up-effect

Answer 16

Developing countries are able to achieve greater productivity for each unit of capital invested because they have the advantage of using tech that have already have been developed by other countries

Question 17

Total factor productivity

Answer 17

The portion of output produced that is not explained by the number of inputs used in production. Captures the factors that influence the overall effectiveness of inputs. Value of new innovations, which increase the efficiency of inputs

Question 18

Infrastructure

Answer 18

The -unlicensed capital of a nation, including transportation networks, power-generating plants and transmission facilities, public education institutions, and other intangible (нематериальный) resources, such as protection of property rights and a stable monetary environment (Includes dams, roads, bridges, transportation network, air and rail lines, power-generating plants and power transmission lines (tangible goods))

Question 19

For what does government provide protection?

Answer 19

Property rights, enforcement of contracts and stable financial system

Question 20

What does the Index of Economic Freedom measure?

Answer 20

It measures the impact of the free markets, which supports economic growth. 12 categories: property tights, government integrity, judicial effectiveness, taxes, government spending, fiscal health, business, labor, money, trade, investment and finance

Question 21

Why the nominal interest rate is greater than the real one?

Answer 21

Due to inflation

Question 22

What happens when the unemployment rate equals the natural rate of unemployment?

Answer 22

Economy produces full employment output