Finals Chapter 14

Question 1

Countries grow (per capita incomes rise)

Answer 1

when the ratio of capital per worker increases.

Question 2

Neo-classical economists thought that the amount of savings generated by a country

Answer 2

determined its growth. More savings meant more investment which meant faster growth.

Question 3

Modern economists argue that the creation of new ideas

Answer 3

causes money to flow to the inventors (or those who will use the invention), creating investment and economic growth where the ideas are spawned, regardless of whether there is savings there or not.

Question 4

Economic growth can fail to occur in countries for a number of reasons, including

Answer 4

political instability, cultural issues, excessive population growth, or lack of functioning financial markets.

Question 5

Economic growth

Answer 5

Economic growth occurs when the Real GDP per capita of a country grows. That is, when the economy produces more goods and services per person than it did before.

Question 6

Investment

Answer 6

Investment is the purchase of capital goods, such as factories and equipment.

Question 7

Capital deepening

Answer 7

Capital deepening occurs when industries that already use capital increase the amount of capital used by each worker.

Question 8

Capital widening

Answer 8

Capital widening occurs when industries that had not been using capital begin to employ it.

Question 9

Capital / Labor ratio

Answer 9

According to Neo-classical theory, we need to increase the size of the capital stock to make an economy grow. The capital to labor ratio (K/ L) is the key. K stands for capital, and L stands for labor.

Question 10

Savings

Answer 10

Savings create investment in the classical world.