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ECO1017 > The real economy in the long run > Flashcards

The real economy in the long run Flashcards

1
Q

What does a country’s standard of living depend upon?

A

Its ability to produce goods and services

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2
Q

The rate of what varies greatly?

A

Growth

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3
Q

What do the poorest countries have that the UK has not seen for many decades?

A

Average levels of income that haven’t been seen in the UK for a very long time

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4
Q

What does productivity play a key role in?

A

Productivity plays a key role in determining living standards for all nations in the world

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5
Q

What does productivity refer to?

A

The amount of goods and services that a worker can produce for each hour of work

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6
Q

What is needed to understand the large differences in living standards?

A

The production of goods and services

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7
Q

What is meant by factors of production?

A

These are the inputs used to produce goods and services

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8
Q

What are 4 factors of production?

A

Physical capital
Human capital
Natural resources
Technical knowledge

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9
Q

What type of factor of production is physical capital?

A

It is a produced factor of production

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10
Q

What is meant by “produced factor of production”?

A

An input into the production process that in the past was an output from the production process

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11
Q

Define physical capital

A

The stock equipment and structures used to produce goods and services

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12
Q

Give three examples of physical capital

A

Tools used to build or repair vehicles
Tools used to build furniture
Office buildings, schools etc

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13
Q

Define human capital

A

Term for the knowledge and skills that workers acquire

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14
Q

What 3 things are examples of knowledge and skills workers acquire as part of human capital?

A

Education
Training
Experience

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15
Q

What is human capital similar to and why?

A

It is similar to physical capital. It raises a nation’s ability to produce goods and services

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16
Q

Define natural resources

A

Inputs used in production that are provided by nature such as land, rivers and mineral deposits

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17
Q

What are the two main categories of natural resources?

A

Renewable and non-renewable

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18
Q

Give two examples of non-renewable resources

A

Coal

Petroleum

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19
Q

Give two examples of renewable resources

A

Trees and forests

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20
Q

How important are natural resources to the economy?

A

They can be important but aren’t necessary for an economy to be highly productive in producing goods and services

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21
Q

Define technical knowledge

A

Society’s understanding of the best ways to produce goods and services

22
Q

What does human capital refer to?

A

The resources expended to transmitting this understanding to the labour force

23
Q

How do productivity and living standards improve?

A

Governments use policies

24
Q

Give 6 government policies used to raise productivity and living standards

A 
Encourage investment from abroad
Encourage saving and investment
Establish secure property rights and maintain political stability
Promote free trade
Promote research and development
Encourage investment and training
25
Q

What is another way to raise future productivity?

A

To invest more of current resources into the production of capital

26
Q

What does investing more of current resources into the production of capital mean that we have to do?

A

We have to consume less today in order to save more

27
Q

What is the aggregate production function determined by?

A

This is determined by technology and capital and labour productivity for a given level of physical capital stock

28
Q

What does the savings rate determine?

A

The level of investment

29
Q

How can you find the level of GDP consumption from the aggregate production function

A

It is the difference between the aggregate production function and investment

30
Q

What is an increasing physical capital stock associated with?

A

An increasing physical capital stock is associated with rising GDP

31
Q

Why does GDP increase from increasing physical capital slow?

A

Because of diminishing marginal product

32
Q

Explain the property of diminishing returns

A

As the stock of capital rises, the extra output produced from an individual unit of capital falls

33
Q

What happens as a result of diminishing returns?

A

There is an increase in the saving rate which leads to a higher growth only for a while

34
Q

What does a higher saving rate lead to in the long run?

A

A higher saving rate leads to a higher level of productivity and income, but not to a higher growth of these

35
Q

What does the catch up effect refer to?

A

This refers to the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich

36
Q

How can governments increase capital accumulation and long-term economic growth?

A

By encouraging investment from foreign sources

37
Q

What are 2 key types of investment from abroad?

A

Foreign Direct Investment

Foreign Portfolio Investment

38
Q

What is FDI?

A

Capital investment owned and operated by a foreign entity

39
Q

What is FPI?

A

Investments financed with foreign money but operated by domestic residents

40
Q

What is an issue with investment from abroad?

A

The profits don’t end up in that country

41
Q

Why is education important for long term growth?

A

Each year of education can increase a person’s wage which can improve their standard of living

42
Q

How can an educated person benefit the economy?

A

By generating new ideas about how best to produce good and services

43
Q

What is one issue as a result of lack of education in poor countries?

A

Brain drain

44
Q

What can human capital investments refer to?

A

Investments in people such as improvements in improved health

45
Q

What did Fogel conclude about per capita income and nutrition?

A

Improved nutrition accounted for almost a third of growth in per capita income

46
Q

What do property rights refer to?

A

The ability of people to exercise authority over the resources that they own

47
Q

What is an important prerequisite for the price system to work?

A

An economy-wide respect for property rights

48
Q

What will a country that eliminates trade restrictions experience?

A

It will experience the same kind of economic growth that would occur after a major technological advance e.g a country that exports wheat and imports steel it would benefit in the same way as a if it had invented a way to turn wheat into steel.

49
Q

Where do most technological advances come from?

A

Private research by firms and individual invenntors

50
Q

How can the government encourage the development of new technologies?

A

Through research grants, tax breaks and the patent system

51
Q

In what 3 ways does population growth interact with factors of production?

A

Stretching natural resources
Diluting the capital stock
Promoting technological properties

52
Q

Why is the return to capital especially high in poor countries?

A

Because of diminishing returns

ECO1017 (16 decks)

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