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Ch. 9- economic growth
Terms in this set (31)
sustained expansion of production possibilities
economic growth rate
yearly percentage change of real GDP
how do you calculate the growth rate of real GDP?
real GDP in the current year - real GDP in the previous year all divided together by real GDP in the previous year
How do you calcuate the growth rate of real GDP per person?
growth rate of real GDP - growth rate of the population
rule of 70
number of years it takes for any level of variable to double
how is the rule of 70 calculated?
70 divided by the percentage growth rate of the variable
if standard of living is to rise, what must happen?
real GDP per person must grow.
what does sustained economic growth do?
transform poor nations into rich ones.
quantity of real GDP produced through one hour of labor.
how do you calculate labor productivity?
real GDP/aggregate hours
What are the influences associated with labor productivity growth?
saving/investment in physical capital, and expansion of human capital/discovery in new technology
law of diminshing marginal returns
small quantity of capital equals increase in capital equaling a large increase in production, and vice versa for large quantity of capital
how real GDP per hour of labor changes as the quantity of capital per hour of labor changes.
Where does human capital come from?
experience and training, job experience, and health and diet.
Increase in capital can bring what?
large/small increase in output at small/large quantiy of capital
what happens to the effects of human capital expansion and the discovery of new technologies/labor productivity?
it shifts the productivity curve upward
to reap the benefits of technological change, what must happen?
capital must increase.
what happens to advances in technology and growth of human capital?
it makes labor and capital more productive and shifts the productivity curve upward.
what happens to increase in capital per worker as well as advances in technology and growth of human capital?
it makes labor more productive and brings economic growth.
real GDP growth depends on what?
quantity of labor growth, and labor productivity growth
what does quantity of labor growth depend on?
population growth, labor force participation, and average hours per worker.
what does labor productivity growth depend on?
physical capital growth, human capital growth, and technological advances.
classical growth theory
this says that the clash between exploding population as well as limited resources will eventually bring economic growth to an end
another name for classical growth theory from Thomas Robert Malthus- clash between exploding population and limited resources will eventually bring economic growth to an end
new growth theory
unlimited wants will bring us to greater productivity and perpetual economic growth
What are the factors involved in the new growth theory (unlimited wants will bring us to greater productivity and perpetual economic growth)?
-human capital expands because of choices
-discoveries result from choices
-discoveries bring profit, and competition destroys profit
-many people can use discoveries at the same time
-physical activities can be replicated
this exists when people are able to make personal choices, private property is protected by the rule of law, and are free to buy/sell in markets.
social arrangements governing the protection of private property, like in a gated community
what are the policies to achieve faster growth?
create incentive mechanisms, encourage saving, encourage research and development, encourage international trade, and improve the quality of education.
what are the requirements associated with economic growth (sustained expansion of production possibilities)?
incentive system created by economic freedom, property rights, and markets.
how might it be possible to achieve faster economic growth (sustained expansion of production possibilities)?
encourage saving, subsidizing research/education, and encouraging international trade.