CFA Level 2 - Economics R14
Terms in this set (13)
The sources of economic growth
1. Aggregate hours
2. Labor productivity
Change in Aggregate hours
1. Working-age population growth
2. Changes in the employment-to-population ratio.
3. Changes in average hours per worker.
Change in Labor productivity
1. Physical Capital growth
2. Human Capital growth
3. Technologies advances
Rule of 70
The number of years for the level of a variable to double is aprox. 70 divided by the annual percentage growth rate of the variable.
Preconditions for Economic Growth
2 .Property rights
3. Monetary exchange
Factors that can hurt property rights
1. Govermental confiscation of assets
2. High Taxes
3. Regulations that target those out of favor with the current regime
Economic Growth means...
More income and higher standard of living
Achieving faster Growth
- Stimulate saving
- Stimulate research and development
- Target high-technology firms
- Encourage international trade
- Improve the quality of education
Classical Theory Definition
When technological advances increase real GDP per person above subsistence level, a population explosion brings diminishing returns to labor and real GDP per person returns to the subsistence level.
Neoclassical Growth Theory Definition
When technological advances increase saving and investment, an increase in the capital stock brings diminishing returns to capital and eventually, without further technological change, the capital stock and real GDP per person stop growing.
New Growth Theory Definition
When technological advances increase saving and investment, an increase in the capital stock does not bring diminishing returns to capital and growth persists indefinitely.
Factors that increase potential GDP
An increase in labor productivity (Physical capital, human capital, technology)
An increase in population.
Neoclassical growth theory Long/Short Term
Long run economic Growth is dependent upon productivity growth and the population growth.
The savings rate of a nation will only have an impact on its short term economic growth rate.