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Chapter 12 Economic Growth
Terms in this set (20)
What is economic growth?
Economic growth is usually measured by the annual percent change in real output of goods and services per capita. Improvements in and greater stocks of land, labor, capital, and entrepreneurial activity will lead to greater economic growth and shift the production possibilities curve outward.
What is the Rule of 70?
According to the Rule of 70, if you take a nation's growth rate and divide it into 70, you have the approximate time it will take to double the income level.
What is productivity?
Rising productivity plays a key role in determining the standard of living and long run economic growth. The amount of goods and services a worker can produce per hour.
What factors contribute to long-run economic growth?
The factors that contribute to economic growth are increased quantity and quality of labor, natural resources, physical capital, and technological advances.
What is human capital?
Labor, or human capital, can be improved through investment in human capital---that is, education, on the job training, and experience can improve the quality of labor.
Why is the saving rate so important for increasing economic growth?
Generally, higher levels of saving will lead to higher rates of investment and capital formation and therefore, to greater economic growth.
Why is research and development so important for economic growth?
Innovations resulting from investments in research and development have the potential to accelerate economic growth even further.
Why are property rights so important for increasing economic growth?
Economic growth rates tend to be higher in countries where the government enforces property rights more vigorously.
Why is education so important for economic growth?
Education, investment of human capital, is important to improving standards of living and economic growth.
What is gross domestic product (GDP)?
Gross domestic product is the value of all final goods and services produced within a country during a given time period.
Why must expenditures equal income?
All of our spending ends up as someone's income. Every buyer has a seller.
What are the four categories of purchases included in the expenditure approach?
Four catagories of spending are used in the GDP calculation: consumption, investment, government purchases, and net exports.
How are net exports calculated?
Net exports are calculated by subtracting total imports from total exports.
How is national income calculated?
National income is measured by adding together the payments to the factors of production---wages, rent, interest, and profit.
What does personal income measure?
Personal income measures the amount of income received by households before personal taxes.
What are the problems with using GDP to measure output?
It is difficult to compare real GDP over time because of the changing value of money over time.
What is per capita GDP?
Per capita real GDP is real output of goods and services per person. In some cases, real GDP may increase, but per capita real GDP may actually drop as a result of population growth.
What are some of the deficiencies of GDP as a measure of economic welfare?
Factors making it difficult to use GDP as a welfare indicator include non-market transactions, the underground economy, leisure, externalities, and the quality of goods.
What are non-market transactions?
Non-market transactions are the exchanges of goods and services that do not occur in traditional markets and for which no money is exchanged.
What is the underground economy?
The underground economy is the unreported production and income that comes from legal and illegal activities.
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