Week 2 - Economic Growth Flashcards
Ireland increases investment in its physical capital by 15%, while at the same time, South Sudan gets a grant and increases investment in physical capital by 15% as well. Which country will experience a greater impact on productivity as a result of this investment?
South Sudan will have a greater impact as it has less capital.
Which of these are examples of property rights being enforced?
I. a new homeowner building a house on their neighbor’s land
II. the police returning a stolen car
III. Jerry filing a patent so no one can copy his new product
II and III
For many years, Thomas Edison and General Electric faced no competition in selling their new product, electric light bulbs. Edison invested in the creation of a modern cost-effective electric light bulb. Why would the government encourage a monopoly for General Electric and the light bulb?
By granting temporary monopolies, the government encourages innovation and new ideas. Think of a temporary monopoly as a temporary patent, it shouldn’t last forever
The production function
Output Y is from Capital (K) labour (L) and human capital (H) that goes into technology
Technology
how efficient inputs are turned into outputs
Capital (K)
tools, machinery & structure
Labour (L)
the number of people working
Human capital (H)
the training and education the working people have
production function
Y = f(L, H, K)
factors that explain differences in GDP levels
- Investment in Physical capital
- Population growth rates
- Human capital
- Technology growth
does increasing population alone increase economic growth
NO
what factors of economic growth would be impacted by abundant stocks of oil? (NATURAL RESOURCES)
- Investment in Physical capital
- Population growth rates
- Human capital
- Technology growth
what factors of economic growth would be impacted by the level of trade?
- Investment in Physical capital
- Population growth rates
- Technology growth
what factors of economic growth would be impacted by low birth rates?
- Population growth rates
- Human capital
what factors of economic growth would be impacted by culture or social norms?
- Investment in Physical capital
- Population growth rates
- Human capital
- Technology growth
what factors of economic growth would be impacted by a high malaria rate?
- Investment in Physical capital
- Population growth rates
- Human capital
what factors of economic growth would be impacted by policies that support innovation?
- Technology growth
Aggregate production function and per-worker production function
Draws production vs. a variable per person. Always intersects at the origin (no free lunch)
Diminishing returns to physical capital
Exhibited by aggregate production function as graph bows.
Best example of technology
division of labour - specialization that increases economic efficiency. An example of comparative advantage
Increase in physical capital would move the apf
along the curve up
Increase in technology would move the apf
shift up
increasing population would move the apf
along the curve down - due to physical capital/person decreasing
Increase in physical capital and technology would move the apf
along the curve up and shift up
sources of long-run economic growth
- Labour productivity
- Physical capital
- Human capital
- Technology
Frederick Taylor
Scientific management: allocating inputs efficiently (think Ford)
Occupational segregation
Must be reduced for an efficient economy
Institutions
create rules and laws
Natural resource curse
describes how resource-rich countries often end up poor
Is a lower population growth rate good for economic growth and why?
Yes, becasue more people shares inputs and that’s less efficient (quality > quantity)
Rule of 70
doubling time = 70/annual growth rate