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Economics > Growth Introduction > Flashcards

Growth Introduction Flashcards

1
Q

What is purchasing power parity

A

Exchange rate based on the cost of goods eg food, transport, fuel
How much can €1 worth of goods buy you….

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2
Q

Why is Big Mac used to show PPP

A

Because the product is universal but it’s price can show the difference between currencies in countries
Eg Swiss Big Mac is more expensive in dollars than US Big Mac meaning Swiss currency is currently overvalued

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3
Q

Why is GDP per capita better at showing living standards

What are limitations of GDP per capita

A

It shows average income
It doesn’t show spread of wealth
Population size can have an effect eg Ireland has a very high GDP per capita because of its small population

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4
Q

How do we measure annual GDP growth

A

(New gdp - old gdp)/old gdp

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5
Q

What is the Malthusian theory

A

Without invreases in food production., larger populations are self correcting ie war/famine

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6
Q

When did we escape the Malthusian trap

A

Industrial revolution

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7
Q

Why did industrial revolution happen in England

A

They wanted to use machinery instead of paying for labour
Eg steam engine

In other countries, it was cheaper to hire workers than innovate

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8
Q

What is the production function (equation)

A

Y = AK^(1-a)L^a

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9
Q

What does L stand for in the production function

A

Labour

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10
Q

What does K stand for in the production function

A

Capital

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11
Q

What does A stand for in the production function

A

Technology

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12
Q

What is diminishing marginal product

A

When you hold one input of the production function fixed

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13
Q

What is the dismissing marginal product of labour

A

Hold capital fixed

As labour increases, growth of output decreases

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14
Q

What is constant returns to scale in the production function

A

If we increase labour and capital by the same amount, output will also increase by that proportion eg double labour and capital means output will be doubled

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15
Q

What are endogenous variables

A

Variables we have control over eg labour, capital

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16
Q

What are exogenous variables

A

Variables we have no control over eg technology

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17
Q

Increasing A (technology) in the producing function will lead to more or less output

A

More

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18
Q

What does small y represent in the solow growth model

A

Output per person (assuming the labour force is the population)

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19
Q

What does small k represent in solow growth model

A

Capital per person

20
Q

What do small letters usually mean

A

Per capita

21
Q

In the solow model, what two terms can be used interchangeably

A

Savings and investment

22
Q

According to the solow growth model what does investment become over time

A

Capital

23
Q

How is capital stock depreciation calculated

A

Depreciation rate * capital

24
Q

If capital depreciation is greater than investment, what will tomorrow’s capital look like

A

Will decrease

25
Q

If investment is greater than capital depreciation, what will tomorrow’s capital look like

A

Will increase

26
Q

If investment is equal to capital depreciation, what will tomorrow’s capital look like

A

Will be equal to today’s capital

27
Q

Where is the equilibrium in the solow growth model

A

Where depreciation of capital is equal to investment

28
Q

How can countries grow using the solow growth model

A

Saving more?

29
Q

When countries have different savings rates, can they have the same steady state

A

No

The living standards at these steady stateswill be quite different too

30
Q

Does population growth mean GDP growth

A

No, more pioulation means lower GDP per capita

31
Q

Growth in living standards are more likely to occur from … than increase in GDP per capita

A

Innovation (research and development)
Improving human skills (investing in education)

Ie technological (A) Improvements

32
Q

Additional influences on economic growth for a country

A

Their geography (what natural resources are available to them, if they’re landlocked, a small island)
Globalisation/trade networks
Institutions/governments

33
Q

Typical growth rates in
A. Developed countries
B. Developing countries

A

A. 1-2%

B. 5-12%

34
Q

What is the rule of 70

A

If some variable grows at x% per year, then it’ll double in 70/x years approx

35
Q

Why is investment in human capital a key to growth

A

It’s likely to increase technology which in turn promotes efficiency and increases productivity

36
Q

What is productivity

A

Quantity of goods/services that a worker can produce in a specific time period

37
Q

What is human capital

A

Knowledge and skills

38
Q

What is the equilibrium in solow growth model called

A

Steady state

39
Q

Why do we use the production function

A

To understand how output will grow according to input

40
Q

Lower investment typically means there will be lower or higher quality of life

A

Lower

41
Q

Can gdp increase solve all Millenium development goals? What can it solve? What else is needed to solve?

A

It can lead to solving problems as the government will have the funding to do so but a lot more is needed than the funds

You need a government to target their investment
You need gender equality, entrepreneurship, low levels of crime etc

42
Q

if two countries have different savings rates, who will reach steady state first typically

what does this mean

A

one with lower savings rate

this means the country with the lower savings rate has a lower quality of life(lower GDP)

43
Q

what is nominal exchange rate

A

rate at which a person can trade the currency of one country for the currency of another

44
Q

what are real exchange rates

A

rate at which a person can trade the goods and services of one country for the goods and services of another

45
Q

how can different levels of output but same level of capital in the solow growth model be explained

A

one country has more productive technologies

46
Q

what is the only thing that can drive long term growth

A

technological changes

47
Q

what is potential output

A

GDP as high as it can be (all resources being used) without competition for resources causing inflation

Economics (25 decks)

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