### real GDP per capita

real GDP/population

### True or False? The average worker today is more productive than workers a century ago because even though they have less physical capital on average, they have more education to offset this disadvantage

Workers today are more productive because they have more physical capital per worker as well as more education.

savings

True

### The book published by scientists in the Club of Rome was

The Limits to Growth

### True or False? The most important measure used to determine economic growth is the population size divided by real GDP.

False.
The most important measure of economic growth is real GDP per capita, which is real GDP divided by population size.

True.

business
government

### The primary reason for the poor economic performance within sub-Saharan Africa is

political instability

True

### The key statistic used to track economic growth is

real GDP per capita

### Physical capital per worker increased by 4%. How much has growing physical capital per worker contributed to productivity growth?

This raises productivity by 0.5 x 4%, which is 2%.

### The U.S. became the world's leading economy in part because

American firms were among the first to make research and development a part of their operations.

True

### Economists believe that likely limits to economic growth will arise mainly because of:

environment degradation

### If an amount doubles in 10 years, its growth rate must be

According to the Rule of 70,

70/growth rate = # of years needed for amt to double. If growth rate = 7%, amt doubles in 10 years.

True

### The sources of savings are

foreign and domestic households

Chile

sustainable

### Diminishing returns to physical capital may disappear if:

technology improves

false

### Southland has a real GDP per capita of \$5000, which is growing at 10%. Northland has a real GDP per capita of \$10,000, which is growing at 5%. Real GDP per capita for the two nations will converge in ______ years.

14 years.
Southland: 5,000 -> 10,000 in 70/10 = 7 years. So 20,000 in 14 years.
Northland: 10,000 -> 20,000 in 70/5 = 14 years.

### negative externality

A cost that individuals or firms impose on others without having to offer compensation.

*In the absence of government intervention, individuals and firms have no incentive to reduce negative externalities.

### Sustained economic growth occurs only when

the productivity of workers increases steadily

True

### True or False? Diminishing returns to physical capital means that real GDP per worker eventually decreases as physical capital per worker increases.

False.
Diminishing returns to physical capital means that the increase in real GDP per worker is smaller, but still positive, as more physical capital per worker is added.

### Real GDP in the country of Esperano has grown at 4% per year for the last 30 years. The labor force has grown at 1% per year and the quantity of physical capital has grown at 5% per year. A 1% increase in average physical capital per worker (all other things being equal) raises productivity by 0.5%. Average education has not changed. How much has technological progress contributed to productivity growth?

Productivity increased by 3% and the growth of physical capital contributed 2%, so technology contributed 1%.

so 1%

Thomas Edison

investment

True

### ____________ is spending used to create and implement new technologies.

research & development

False.

### True or False? A robot that can perform surgery is an example of human capital because it is a machine that can do the same task as a human.

False.
A robot is physical capital. Human capital relates to the education and experience of the labor force.

### True or False? If the government builds infrastructure, it decreases economic growth because it crowds out the private sector.

False.
Much infrastructure would not be provided by the private sector and infrastructure provides long term benefits.

financial

### The key statistic used to track economic growth over time is

real GDP per capita

7

1.8%

44

### The primary ingredient necessary for long-run economic growth is

rising labor productivity

human capital

### An aggregate production function will show how productivity depends on

technology, human capital, physical capital

### Diminishing returns to physical capital may disappear if we

also increase the level of technology and human capital

### Total factor productivity is a measure of

the amount of output that can be produced with a given amount of factor inputs.

### Growth accounting allows us to calculate

the effects of greater physical and human capital on economic growth.

2.3% per year

### an international comparison today shows that

natural resources are less important than human and physical capital in determining productivity.

### In the time since Malthus wrote his book

advances in technology and increases in physical capital have more than offset the effects of a rising population.

### Countries that add significantly to their stock of physical capital

experience diminishing marginal returns to labor

### Typically, countries in which investment accounts for a large share of GDP

have a high domestic savings rate

### R&D is paid for by

combo of private and government funds

### Economist Paul Romer described R&D as

the creation of improved instructions.

### New growth theory asserts that technological change

responds to economic incentives

### The standard of living in the United States has increased over time because

there has been long-run economic growth.

productivity

### A sustained increase in per capita GDP arises from

higher productivity

### As the U.S. workforce becomes more educated:

there is increase in human capital

level of wages

### When more physical capital is added to the production process but the number of workers remains constant:

amount of output per worker increases, but at a decreasing rate

### Total factor productivity measures the economic effect of:

technological progress

### The inputs of the aggregate production function are

physical capital per worker, human capital per worker, and technology

### The evidence seems to suggest that innovations in information technology made the most significant contributions to productivity:

when they changed the way office work was done

### In order to increase its stock of physical capital, an economy must:

engage in investment spending

### A healthy banking system can contribute to the growth of an economy by

providing a way for savings to be channeled into business investment

### education enhances economic growth by

adding to the stock of human capital.

### what can enhance productivity and growth?

Governments that provide and maintain a good infrastructure for economic activity

### convergence hypothesis asserts that

relatively poor countries will have higher growth rates than prosperous countries will.

### Those who question whether long-run economic growth is sustainable emphasize that

rates of pop growth are too high

infinite growth

### growth rates productivity + work week hours (manufacturing)

inverse relationship
productivity increases
as number of hours worked per week decreases

### growth rates depend on

changing pop
increasing tech
more capital per worker

### what made ireland turn things around for the better?

good infrastructure and human capital

### sources of long run growth

1. (labor) productivity = output per worker
2. phys capital = human-made resources (buildings, machines)
3. human capital = improvement in labor created by the education + knowledge embodied in the workforce
4. technology = technical means for the production of goods + services

### how can a big time CEO make the same as a teacher?

higher quality degrees hold more total welfare than lower quality degrees.
some degrees have more market based welfare than others.

### aggregate production function

hypothetical function that shows how productivity (real GDP per worker) depends on the quantities of physical capital per worker + human capital per worker as well as the state of tech

### aggregate production function

Y/L = f(K/L, H/L, T)
Y = F(T,K,Z,L)

Y = Real GDP
T = Technology
K = Physical Capital
Z or H = Natural Resources
L = Labor Hours

### recent example of APF

GDP per worker = T x (Physical capital per worker) ^0.4 x (Human capital per worker)^0.6

where T reps an estimate of the level of tech and each year of education raises workers' human capital by 7%

### why did china grow faster than india?

china's higher levels of investment spending, which raised its level of phys capital per worker faster than india's

faster chinese technological progress

### aggregate production function exhibits

diminishing returns to physical capital when holding the amount of human capital and the state of technology fixed, each successive increase in the amount of physical capital leads to a smaller increase in productivity

### as physical capital per worker rises, what happens to real GDP per worker?

it becomes smaller

### a reasonable increase in physical capital per worker will/won't reduce productivity

won't

due to dim returns, at some point increasing the amt of phys capital per worker no longer produces an economic payoff

### growth accting

estimates the contrib of each major factor in the agg prodxn fxn to econ growth

### each 1% rise in physical capital per worker, holding human capital and tech constant, raises output per worker by

1/3 of 1% or 0.33%

### total factor productivity

amount of output that can be achieved with a given amount of factor inputs

### technological progress effect on productivity curve

shifts it upward = increase in real GDP per worker

capital NOT LAND

### IT Paradox

new tech doesn't yield its full potential if you use it in old ways

### what are two crucial ingredients in long run econ growth

1. political stability
2. protection of property rights

*excessive gov intervention can decrease econ growth

### East Asia - why so good?

high savings + investment spending rates
education emphasis
adoption of tech advances from others

### Latin America - why so bad?

poor education
political instability
irresponsible gov policies

### sub Saharan Africa - why so ugly?

severe instability
war
poor infrastructure (affecting public health)

### what region's growth rates have converged?

advanced countries NOT the world

### what makes long run growth sustainable?

if it can continue in the face of the limited supply of natural resources and the impact of growth on the environment

5 fold

### physical capital

all human-made goods that are used to produce other goods and services; tools and buildings

### human capital

the knowledge and skills that workers acquire through education, training, and experience

### aggregate production function

relationship that tell us how real GDP changes as the quantity of labor changes when all other influences of production remain the same

### aggregate production function formula

Y = F(T,K,Z,L)
Y = Real GDP
T = Technology
K = Physical Capital
Z = Natural Resources
L = Labor Hours

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