long-run economic growth

Question 1

industrial revolution

Answer 1

mechanical power replacing human or animal
glorious revolution -> employers willing to make investments necessary

Question 2

effects of different growth rates on living standards

Answer 2

small differences in economic growth result in big long-term differences in living standards even after 50 years

Question 3

why do growth rates matter

Answer 3

fail to raise living standards
poor growth results in previously rich countries lagging behind with higher rares of poverty, life expectancy and high infant mortality

Question 4

is income all that matters

Answer 4

spill over from world growth profits other poorer countries

Question 5

economic growth model

Answer 5

explains growth rates in real gdp per capita in the long run (labour productivity)

Question 6

main factors in tech change

Answer 6

better machinery and equipment
increases in human capital
better means of organizing and managing production

Question 7

pre-worker production function

Answer 7

relationship between real gdp per hour worked and capital per hour worked, holding the level of tech constant

Question 8

increasing output per hour worked

Answer 8

increasing capital
if capital already high, tech change is more effective

Question 9

economic failure of soviet union

Answer 9

held back tech change and slowing growth rates for output

Question 10

new growth theory

Answer 10

model of long-run economic growth that emphasizes that tech change is influenced by economic incentives and so is determined by the working of the market system

Question 11

knowledge capital

Answer 11

nonrival and nonexcludable
public good
increasing returns at the economic level

Question 12

government policy in knowledge capital

Answer 12

protecting intellectual property (patents and copyrights)
subsidizing R&D (performed directly and indirectly)
subsidizing education (technical training)

Question 13

creative destruction

Answer 13

new innovations destroy old ones

Question 14

entrepreneurs in economic growth

Answer 14

the profits of entrepreneurs provide the incentive for bringing together factors of production in new ways

Question 15

convergence

Answer 15

economic growth model predicts that poor countries will grow faster than rich countries

Question 16

catch up

Answer 16

the level of gdp per capita in poor countries will grow faster than in rich countries
negative relationship between growth in gdp per capita and initial level of gdp per capita

Question 17

happening?

Answer 17

some catching up (previously poorer countries catching up to previously richer countries)
mostly not

Question 18

high income countries have stopped catching up to the US

Answer 18

US labour markets are relatively flexible
US financial system is relatively efficient and the high volume of trading ensures high liquidity

Question 19

lack of growth in many low-income countries

Answer 19

failure to enforce the rule of law
wars and revolution
poor public education and health
low rates of saving and investment

Question 20

rule of law

Answer 20

ability to enforce the laws of the country
private property and enforcing contracts

Question 21

foreign investment (2)

Answer 21

foreign direct investment: factory in another country
foreign portfolio investment: stocks and bonds issued in another country

Question 22

globalization

Answer 22

process of countries becoming more open to foreign trade and investment
higher growth rates

Question 23

pro-growth policies

Answer 23

enhancing property rights and the rule of law
improving health and education
policies to promote technological change
policies that promote saving and investment