Production And Growth

Question 1

What is Productivity

Answer 1

Productivity is the quantity of goods and services that measure the amount of value created for each hour that is worked in a society

Question 2

What are the four determinants of productivity

Answer 2

1. Human Capital
2. Technological knowledge
3. Natural resources
4. Physical Capital

Question 3

Describe the four determinants of productivity

Answer 3

1. Human capital: This is the knowledge and skills that are acquired through training, education, and experience.
   For Example- Crusoe will catch more fish if he has been trained in the best fishing techniques.
2. Technological knowledge: This is society’s understanding about how the world works and the best ways to produce goods and services.
   For Example- Crusoe will catch more fish if he had invented better fishing tools.
3. Natural resources: This is the inputs into the production of goods and services that are produced by nature. Such as land, rivers, and mineral deposits.
   For Example- Crusoe will have better luck catching fish if there is a plentiful supply around his island.
4. Physical capital: This is the stock of tools, machinery, equipment, and structures that are used to produce goods and services.
   For Example- Crusoe will catch more fish if he has more fishing poles.

Question 4

What is the production function

Answer 4

A production function describes the relationship between the quantity of inputs used in production and the quantity of output from production.

Question 5

The production function generally is written like this:
Y = A F (L, K, H, N)
Y = Output
L = Quantity of labour
K = Quantity of physical capital
H = Quantity of Human Capital
N = Quantity of natural resources
(A) reflects the available production technology
(F) is a function that shows how inputs are combined to produce output

A. True
B. False

Answer 5

True

Question 6

What are diminishing returns

Answer 6

Diminishing returns is the property whereby the benefit from an extra unit of an input declines as the quantity of input increases.

Question 7

What is the Catch-up effect

Answer 7

The catch-up effect isa theory that developing economies will catch up to more developed economies in terms of per capita income.

Question 8

What is a foreign direct investment

Answer 8

Foreign direct investment refers to a capital investment that is owned and operated by a foreign entity.

Question 9

What is a foreign portfolio investment

Answer 9

Foreign portfolio investment refers to an investment that is financed with foreign money but operated by domestic residents.

Question 10

In the long run, a higher saving rate leads to a higher level of productivity and income, but not to higher growth rates.
A. True
B. False

Answer 10

True

Question 11

What is Externality

Answer 11

Externality is the effect of one person’s actions on the well-being of a bystander.

Question 12

What is Brain drain

Answer 12

Brain drain is the immigration of many of the most highly educated workers to rich countries, where they can enjoy a higher standard of living.

Question 13

What are property rights

Answer 13

Property rights are the ability to exercise authority over the resources they own

Question 14

Political instability is a threat to property rights.
A. True
B. False

Answer 14

True

Question 15

Investment in human capital (education) is at least as important as investment in physical for long run economic success.
A. True
B. False

Answer 15

True