Lecture 13 Flashcards
Define human capital
skills and knowledge
Do poor countries tend to catch up with rich countries?
no but they converge into clubs of countries
Sometimes (eg. in South Korea), there is import substitution. Define this
This is when industries are built up to replace imports and then some become export industries so there is a huge increase in GDP per person.
What happens if there is no economic growth?
you can’t generate taxes and there will be lower standard of living
What is a downside to economic growth?
the environmental impacts and the income inequality
From 1820 to 2012, describe the trend in the percentage of global GDP by China
it fell from 1820 until 1970 and then it began to increase due to introduced market reforms, market zones.
People who worked hard and got higher income were therefore encouraged to be innovative and there was access to export markets
Why was the European global GDP share so high?
due to the industrial revolution
What are the two different ways to measure GDP? Which country is largest based on each method?
- local market prices or cost of production and converted into US dollars at exchange rate (USA is the biggest using this method)
- International prices (PPP method ie. taking into account that prices are different in different places, China biggest using this method)
GDP is a __________ measure. What does this mean?
cardinal
this means that we can track the number in time and compare countries and in time
There is a _________ relationship between GDP per capita and life expectancy
positive
Increases in real GDP are often used to measure what?
economic growth
Define economic growth
sustained increase in output over time
Annual growth rates that may seem small become large when _________ compounded for many years
compounded
What does compounding refer to?
the accumulation of a growth rate over a period of time
What is the standard compound interest formula and what do each of the components mean?
GDPe = GDPb(1 + r)^n
- GDPe is the real GDP at the end of the growth period
- GDPb is the real GDP at the beginning of the growth period
- r is the annual average rate of growth
- n is the number of years between the beginning and the end years
What is the rule of thumb about doubling a variable?
if a variable grows at x percent per year, then that variable will double in approximately 70/x years
What is NZ’s average growth in real GDP per person?
1.6% per year
What did the leaders such as UK and USA do well?
they had high rates of growth
growth was initially slow but it has been persistent
What did the catch up countries do, especially Japan and Korea?
They saved and gave up consumption now so they could invest in capital to create infrastructure rather than consuming it now. This means they could have larger expansions in the future
Why is a Japanese worker more productive than a worker from Kenya?
There is more investment and more capital per worker and having a better education (human capital)
What caused the increase in South Korea?
an increase in capital, not better capital
What caused the increase in Singapore?
There was huge increase in labour force participation
What 5 things does the catch up process involve?
- very high __________ and rapid increases in _________ ratios
- very high _________ in __________
- adoption of more modern ___________
- increase in importance of _________ __________, and increase in ________ force ___________
- increased ____________, and ____________ exports
- very high investment and rapid increases in K/L ratios
- very high investment in education
- adoption of more modern technology
- increase in importance of market production, and increase in labour force participation
- increased specialisation, and manufacturing exports
A country’s standard of living depends on what?
its ability to produce goods and services (productivity)
Define productivity
the amount of goods and services that a worker can produce from each hour of work
What can someone do to increase their productivity?
gain more skills, education, more human capital per person
What directly determines the productivity?
the factors of production
Define factors of production
the inputs used to produce goods and services
What are four factors of production? Give examples
- physical capital such as machines, buildings, factories, tools etc.
- human capital such as skills, knowledge, talents
- natural resources such as land, rivers, mineral deposits (may need technology to access these natural resources)
- technological knowledge ie. the practical application of the knowledge
What do economists use to describe the relationship between the quantity of inputs used in production and the quantity of output from production?
the production function
What is the production function and what do the components mean?
Y = F(L, K, H, N, A) where Y = quantity of output A = available production technology L = quantity of labour K = quantity of physical capital H = quantity of human capital N = quantity of natural resources F = function
Production functions can have constant returns to scale. What does this mean?
that doubling all inputs causes a doubling of the amount of output
How would we re-write the production function as a per worker basis? What do each of the components mean?
Y/L = F (1, K/L, N/L, H, A) where Y/L = output per worker K/L = physical capital per worker H/L = human capital per worker N/L = natural resources per worker
In the reading, what can some of the growth be attributed to?
It was due to capital accumulation, getting more people into work, spending more on human capital rather than technological development, at that stage but this runs into DMR
