Key terms - Economic growth

Question 1

Aggregate production function

Answer 1

The relationship that tells us how real GDP changes as the quantity of labour changes when all other influences on production remain the same.

Question 2

Classical growth theory

Answer 2

The view that the growth of real GDP per person is temporary, and that when it rises above the subsistence level, a population explosion eventually brings it back to the subsistence level.

Question 3

Growth rate

Answer 3

The annual percentage change of real GDP.

Question 4

Real GDP per person

Answer 4

Real GDP divided by the population.

Question 5

Labour productivity

Answer 5

The quantity of real GDP produced by an hour of labour. Calculated by dividing real GDP by aggregate labour hours.

Question 6

Neoclassical growth theory

Answer 6

The proposition that real GDP per person grows because technological change induces saving and investment that makes physical capital grow.

Question 7

New growth theory

Answer 7

Real GDP grows because of the choices people make in pursuit of profit, and that growth will persist indefinitely.