week 2 Flashcards

Question

Can the GDP deflator and CPI inflation *differ*?

Answer 1

Yes. For ex. if oil prices **rice**, CPI inflation in the UK goes up by MORE than the GDP deflator as **oil makes up a larger share of consumer spending than of GDP** but the two measures of inflation generally move together.

Answer 2

Automatic correction by law/contract of a £ for the effects of rises in the cost of living e.g if you have an indexed pension, the price of the pension will increase in line with inflation to match rise in living costs | There so inflation does not erode the **real** value of money over time

Answer 3

Loan Repayments and Savings Accounts also commonly follow indexation rules to protect the value of money against inflation.

Answer 4

Proximate causes are **direct, immediate factors** that can be *easily observed* and measured, like the increase in physical capital due to the expansion of factories. BUT; fundamental causes are **indirect, underlying factors** that create the conditions for proximate causes to occur, like the establishment of robust trade policies that encourage foreign investment.

Answer 5

the Q of g+s produced from each unit of labour input

Answer 6

- Productivity growth is a **key determinant of GDP growth** ⇒ determine living standards - **Salary increases** tend to follow productivity increases

Answer 7

1. physical capital 2. human capital 3. natural resources 3. technological knowledge

Answer 8

stocks of equipment + structures used to produces g+s -- it stems from investments as capital is a produced factor of production

Answer 9

knowledge and skills that workers acquire through education, training, and experience - less tangible than physical capital

Answer 10

Inputs into the production of g+s **provided by nature**, such as land, rivers, and mineral deposits Distinguish renewable (trees) and non-renewable (oil) natural resources

Answer 11

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

Answer 12

Y = A F(L,K,H,N)

Answer 13

***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 level of technology F () is a function that shows how inputs are combined to produce output

Answer 14

neo-classical

Answer 15

v useful way of thinking - it captures the **clear empirical relationship** between these factors + economic performance

Answer 16

fundamental

Answer 17

its ability to produce g+s

Answer 18

1. increases K: save more -> higher rate of savings => invest more resources into production of capital for use in the future. Example of policy intervention: tax incentives e.g. ISAs 2. trade-off: to invest more in capital, a society must consume **less now** to save **more** of its **current income**

Answer 19

1. capital investment (K) 2. human capital investments (H) 3. r+d (A)

Answer 20

DR refers to a point where level of benefits gained < the amount of effort invested. (as more investment or effort is put into something, the relative return on that investment decreases.) As quantity of input increases, you get less benefit from an extra unit of capital

Answer 21

In the long run, higher savings rate → higher investments and capital But the effect (holding other factor fixed) will be a smaller and smaller increase in output

Answer 22

inc. output per capita

Answer 23

Countries that start off poor tend to grow more rapidly than countries that start off rich why..? because Poor countries have low productivity, even small amounts of capital investment can increase workers’ productivity substantially & over the last 70 years CHINA has grown faster than JAPAN despite lower investment rates.

Answer 24

schools, on-the-job training etc increases productivity Government role = public education, subsidies to educating workers

Answer 25

**Rich Countries:** - High productivity - Additional capital investment - small effect on productivity **Poor Countries:** - Have potential to grow faster than rich countries

Answer 26

A problem for poorer countries. The emigration of highly trained or qualified people from a particular country. - Recent case: Greece - UK has benefitted a lot from this. A reason why people are worried about brexit.

Answer 27

**more productive**

Answer 28

New ideas & technologies (wheel, spinning jenny, steam engine etc)

Answer 29

via publicly operated research institutes, grants… or enforce a patent system (inc. incentive to undertake r+d)

Answer 30

stopping others from making further developments

Answer 31

centralized investments in R&D useful (raise A); public schooling is also useful (raise H) ... But some economists would be wary, even skeptical: “You cannot predict the next technological breakthrough”, “No one can predict what a ‘useful degree’ is”, “public schooling a potential vehicle for brainwashing”

Answer 32

Investments from abroad (investments that don’t require the country’s own citizens to save)

Answer 33

1. foreign direct investment FDI 2. foreign portfolio investment FPI

Answer 34

**Institutions** TO FOSTER ECONOMIC GROWTH: 1. protect property rights 2. prevent damaging instability

Answer 35

Ability of people to exercise authority over the resources they own Courts enforce property rights

Answer 36

- A lack of property rights is a MAJOR problem for some countries - Political instability another major global issue

Answer 37

1. contracts hard to enforce 2. fraud goes unpunished 3. corruption ALL of this: **- Impedes the coordinating power of markets - Discourages domestic saving - Discourages investment from abroad**

Answer 38

Political instability is a threat to property right. 1) can cause revolutions + coups 2) revolutionary gov might confiscate capital of some businesses 3) residents have less incentive to **save, invest** and **start new businesses** 4) foreigners less incentive to invest

Answer 39

LARGE POPULATION (larger L) - population growth

Answer 40

MORE workers to produce G+S -> A larger **TOTAL OUTPUT** of G+S

Answer 41

Population growth: 1. **Dilutes the capital stock →** High population growth Spreads the capital stock more thinly (think of human capital and then imagine more students in a class) -- Lower productivity per worker. Lower GDP per worker 2. **Puts pressures on natural resources (environment).** Reducing rate of population growth therefore often seen as positive. -- Government regulation (e.g. China). Alternative: Incentives (birth control, equal opportunities, etc.)

Answer 42

1. It could **promote technological progress** World population growth ⇒ More scientists, more inventors, more engineers. Hence a higher probability of new bright breakthrough ideas (technological progress).

Answer 43

Participation rate and long-term sickness

week 2 Flashcards

Production and Growth