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Econ 104, Quiz 4, Penn State, Prof. Goeffe

Terms in this set (13)

Why isn't economic growth "zero sum"?
Economic growth is not "zero sum" because the economy is win-win, not win lose. Real world GDP per capita would have stayed the same all of these years if economic growth was "zero sum". Instead it has rapidly grown in the 20th century.
Explain the relationship between human health and economic growth?
Economists believe that there is a link between economic growth and human health because as more people become taller, stronger, and less susceptible to disease, they become more productive.
Explain how long run economic growth has dramatically changed life?
Long run economic growth has changed the way we live by increasing productivity thus increasing the average standard of living.
How do you calculate growth rates and doubling times with the Rule of 70?
Growth Rate= (final value/initial value)^(1/years between) - 1
Doubling with Rule of 70= 70/(growth rate)
Why do small differences in growth rates matter dramatically over long periods?
Small differences in economic growth result in big differences in living standards due to compunding.
Explain how Real GDP per person is determined?
Y= Real GDP
L= number of workers in country's economy
Y/L= labor productivity
pop= population of a country
Y/pop= GDP per person

(Y/pop)=(L/pop) x (Y/L)
Explain how to use the "per-worker production function" graph?
The per-worker production function shows the relationship between capital per hour worked and real GDP per hour worked, holding technology constant. Increases in capital per hour worked increase output per hour worked but at a diminishing rate.

Per-Worker Production Function= Y/L = A•(K/L).3
Explain the fundamental role of markets and institutions in economic growth?
Markets set the wage of just about everyone at rates far above the minimum. Strong institutions promote strong markets. Strong institutions allow for vibrant markets which allows the economy to flourish.
Capital
Manufactured good that are used to produce other goods and services.
Long-Run Economic Growth
The process by which rising productivity increases the average standard of living.
Labor Productivity
The quantity of good and services that can be produced by one worker or by one hour of work.
Per-Worker Production Function
The relationship between capital per hour worked and real GDP per hour worked, holding technology constant.
Market
A group of buyers and sellers for a good or service and the institution or arrangement by which they come out together to trade.
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