UNIT 7 VOCABULARY: ECONOMIC GROWTH AND PRODUCTIVITY Flashcards
Rule of 70:
- Definition: A formula used to estimate the number of years required for a variable (like GDP or investment) to double in value, given a constant annual growth rate. The formula is: Number of years to double = 70 / Annual growth rate (as a percentage).
Example: If an economy grows at 5% per year, it will take approximately 14 years (70 / 5) for the economy to double in size.
Labor Productivity:
- Definition: The amount of output produced per unit of labor input, usually measured as output per hour worked. It indicates how efficiently labor is used in production.
Example: If a factory produces 1,000 widgets in 100 hours of labor, the labor productivity is 10 widgets per hour.
Physical Capital:
- Definition: The stock of man-made goods that are used in the production of other goods and services. This includes machinery, tools, buildings, and equipment.
Example: A company’s fleet of trucks used for delivering goods and its machinery for manufacturing are examples of physical capital.
Human Capital:
- Definition: The skills, knowledge, and experience possessed by individuals that enhance their productivity. Investments in education and training increase human capital.
Example: A worker with a college degree and specialized training in engineering has higher human capital compared to someone without these qualifications.
Technology:
- Definition: The application of scientific knowledge for practical purposes, especially in industry. It includes tools, machinery, and techniques that improve productivity and efficiency.
Example: Advances in computer technology, such as faster processors and more efficient software, are examples of technological progress that enhance productivity.
Aggregate Production Function:
- Definition: A mathematical function that describes the total output of an economy based on the inputs of labor, capital, and technology. It shows how different levels of input contribute to the total production.
Example: The aggregate production function might illustrate how adding more machines and workers increases total output, depending on the level of technological progress.
Diminishing Returns to Physical Capital:
- Definition: The principle that as more physical capital (like machinery) is added to production, holding other factors constant, the additional output produced by each additional unit of capital decreases.
Example: If a factory adds a new machine to an already well-equipped workshop, the extra output generated by this new machine might be less compared to the output gained from the first few machines.
Growth Accounting:
- Definition: The process of determining the contribution of different factors (like labor, capital, and technology) to economic growth. It helps to understand how changes in these factors impact overall economic performance.
Example: Growth accounting might analyze how much of an economy’s growth is due to increases in physical capital, human capital, and technological improvements.
Total Factor Productivity (TFP):
- Definition: A measure of the efficiency with which all inputs are used in the production process. It reflects changes in output not explained by changes in labor and capital inputs and is often seen as a measure of technological progress.
Example: If an economy grows faster than the increase in labor and capital inputs would predict, the extra growth is attributed to improvements in total factor productivity.
Convergence Hypothesis:
- Definition: The idea that poorer economies will tend to grow faster than wealthier ones, leading to a reduction in income disparities over time. It suggests that less developed countries will catch up with more developed countries in terms of income and productivity.
Example: If developing countries adopt advanced technologies and improve their infrastructure, they might experience faster economic growth and gradually close the income gap with developed countries.
Research and Development (R&D):
Definition: Activities undertaken by businesses, governments, or institutions to develop new products, processes, or technologies, or to improve existing ones. R&D is crucial for innovation and long-term economic growth.
Example: Pharmaceutical companies investing in the development of new drugs and technology firms working on advanced software are engaging in R&D.
Infrastructure:
Definition: The basic physical systems and structures needed for the operation of a society and its economy. This includes transportation networks, utilities, and communication systems.
Example: Roads, bridges, power plants, and internet networks are all part of a country’s infrastructure.
Sustainable:
Definition: Practices or processes that meet current needs without compromising the ability of future generations to meet their own needs. Sustainability often involves considering environmental, economic, and social factors.
Example: Using renewable energy sources like solar and wind power is considered a sustainable practice because it helps preserve resources for the future.
Depreciation:
Definition: The gradual reduction in the value of an asset over time due to wear and tear, aging, or obsolescence. In economic terms, it also refers to the loss of value of physical capital.
Example: A delivery truck loses value as it ages and accumulates mileage, which is accounted for as depreciation.
