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97 Cards in this Set

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The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich:
catch-up effect
The knowledge and skills that workers acquire through education, training, and experience:
human capital
Society’s understanding of the best ways to produce goods and services:
technological knowledge
The property whereby the benefit from an extra unit of an input declines as the quantity of the input increases:
diminishing returns
The key to increasing real average incomes in a nation lies in:
increasing productivity
The inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits:
natural resources
In order to accumulate more technological knowledge, a nation must:
spend more money on research and development
The quantity of goods and services produced from each unit of labor input:
productivity
An economy that 'accumulates human capital' is:
increasing the skills of its workers
The stock of equipment and structures that are used to produce goods and services:
physical capital
In the United States over the past century, average income as measured by real GDP per person has grown how much each year?
2 percent per year
The accumulation of a growth rate over a period of time:
Compounding
The inputs used to produce goods and services:
The factors of production:
Physical capital
Human capital
Natural resources
Technological knowledge
What are the 2 types of natural resources?
Renewable resources: trees and forests

Nonrenewable resources: coal and petroleum
What are some examples of physical capital?
-Tools used to build or repair automobiles.
-Tools used to build furniture.
-Office buildings, schools, etc.
What are some government policies that raise productivity and living standards?
-Encourage saving and investment.
-Encourage investment from abroad.
-Encourage education and training.
-Establish secure property rights and maintain political stability.
-Promote free trade.
-Promote research and development.
What do the factors of production directly determine?
productivity
Capital investment owned and operated by a foreign entity:
Foreign Direct Investment
The emigration of many of the most highly educated workers to rich countries:
brain drain
The ability of people to exercise authority over the resources they own:
property rights
In the United States, each year of schooling raises a person’s wage by about how much?
10 percent
Investments financed with foreign money but operated by domestic residents:
Foreign Portfolio Investment
What kind of economic growth will a country that eliminates trade restrictions experience?
The same kind of economic growth that would occur after a major technological advance.
What plays a key role in determining living standards for all nations in the world?
productivity
How can the government encourage the development of new technologies?
Through research grants, tax breaks, and the patent system.
What is the drawback of encouraging investment from abroad?
Some of the benefits of investment will flow to foreigners.
Would you rather live in a nation with a high level of GDP and a low growth rate, or a nation with a low level of GDP and a high growth rate? Why?
A nation with a high level of GDP and a low growth rate because the LEVEL OF GDP is a measure of economic prosperity.
Trade policies that avoid interaction with other countries:
Inward-oriented trade policies
How often does the average U.S. income double?
Every 35 years
What might be a drawback of encouraging research and development?
It may reduce current consumption (this is also true for investment)
What is positively related across countries?
Investment and growth rates
Why is productivity so important?
It plays a key role in determining living standards for all nations in the world.
What might be a drawback of increasing education?
It has an opportunity cost in that children are not engaged in current production.
Why is an economy-wide respect for property rights an important prerequisite for the price system to work?
It is necessary for investors to feel that their investments are secure.
A produced factor of production:
Capital
What is a good gauge of economic prosperity and economic progress?
Economic prosperity: the LEVEL of real GDP

Economic progress: the GROWTH of real GDP
What might be a drawback of reducing the rate of population growth?
It could reduce individual freedom and lower the rate of technological progress.
The saws and drills that woodworkers at Cedar Valley Furniture use to produce chests and cabinets are known as:
Physical capital
The average amount of goods and services from each hour of a worker’s time:
Productivity
How can government encourage growth and, in the long run, raise the economy’s standard of living?
By encouraging saving and investment
In a market economy, how do we know that a resource has become scarcer?
Its price rises relative to other prices
Give 2 reasons why greater educational opportunities for women could lead to faster economic growth in the countries of South Asia:
1) Increased human capital would increase productivity & there would be external effects from greater knowledge in the country.
2) It may lower the population growth rate b/c such opportunities raise the opportunity cost of having a child.
What is the disadvantage of investing more current resources in the production of capital?
It reduces the resources used for producing current consumption.
How are investment and growth rates related across countries?
They are positively related
Trade policies that encourage interaction with other countries:
Outward-oriented trade policies
An input into the production process that in the past was an output from the production process:
Physical capital
What is a drawback of pursuing outward-oriented policies to encourage free trade?
It may make a country more dependent on its trading partners.
In order for an economy to increase investment:
Households must save more
As output increases in the short run, we know that:
Average fixed costs will always decline.
What is the most accurate indicator of a nation's standard of living?
real national income per capita
What would most likely improve the standard of living of a poorer nation?
Policies that increase educational opportunities for a country's population.
What do most economists believe about investment?
Increased investment leads to higher economic growth.
What would most likely lead to a decrease in birth rates?
more desirable employment for women
Which country had the lowest real GDP per person in 1987?
Bangladesh
What will result if the same amount of investment is placed in a poor country and also in a rich country?
That same level of investment in a poor country will lead to greater economic growth than the same level of investment in the rich country.
Why does political instability and insecurity of property rights slow economic growth?
Fear that private property will be confiscated substantially reduces the incentive of individuals to invest and create wealth.
Compared to richer countries, poorer countries are generally characterized by:
rapid population growth
What 2 factors would most likely contribute to the growth of a poorer country?
secure property rights and political stability
The recent growth record of Japan indicates that a nation can grow rapidly without:
abundant domestic natural resources
Generally speaking from society's viewpoint, the returns to research and development undertaken by firms is a ____.
public good
What factor would be most likely to encourage capital formation in a poorer nation?
The expectation that property rights would remain secure.
What is the most important source of differences in living standards between nations (and between time periods)?
productivity
An increase in saving means that:
Fewer consumer goods and services will be produced.
What impact do small changes in the growth rate of real GDP per person have?
They have only a small impact on the current standards of living but they have a large impact on the long-term future standards of living.
What is the best measure of productivity?
An increase in output per hour of work
Suppose that factory output rose from 50,000 units to 55,000 units while labor hours rose from 1100 to 1200. What was the result on labor productivity?
Labor productivity increased slightly
Small differences in the growth rate can turn into:
Significant differences in the growth rate in the long run.
Suppose Ford builds a car plant in Brazil. This is an example of:
foreign direct investment
What would be considered human capital?
a college education
According to the traditional view, what happens as the stock of capital rises?
The extra output produced from an additional unit of capital decreases.
If the political leaders of a country wanted to promote economic growth, what policy alternative would be most effective?
A government program that supported research and development activities.
What would most likely to cause the productivity of labor to increase?
investment in human and physical capital
What would most likely improve the standard of living of a poorer country?
An increase in expenditures on education and capital investment.
Evidence shows that the larger the level of investment as a share of GDP:
The greater the productivity growth rate.
Greg takes a class to learn web page development. This is an example of investment in:
human capital
A nation is more likely to achieve a higher rate of economic growth if it:
Allocates a large portion of its resources to research and development.
A production function show the relationship between:
The quantity of inputs used in production and the quantity of output from production.
What is generally a serious obstacle to the economic growth of poorer nations?
A low rate of capital formation resulting from political and economic instability.
How are saving and economic growth related?
Saving frees resources that can then be used to produce things that cause growth.
What would most likely cause the real GDP per person of poorer countries to rise?
Investment expenditures that enhance the human capital of labor force participants.
What policies often restrict the economic growth of poorer nations?
inward-oriented policies
What is one explanation for the catch-up effect?
diminishing returns to capital
Compared to a century ago, real output and income per person in the U.S. has:
Increased over sixfold
What result from higher productivity growth?
higher living standards
Suppose Joe's Pizzaria would have to pay a wage of $8 per hour to hire an additional employee. If hired, the employee would generate $9 of revenue per hour. In this case, Joe's should:
Hire the extra employee because it will increase profits.
What would likely decrease the rental price of land?
An increase in the price of outputs produced by land.
What is the primary source of income in the U.S. economy?
labor
The change in output that occurs when labor changes by one unit:
Marginal product of labor
What might cause an increase in the demand for labor?
An increase in the price of output produced by labor.
What would result in the highest wages for workers?
high labor demand and low labor supply
What effect would an increase in the price of outputs produced by land have on the rental price of land?
It would likely decrease the rental price of land.
What does society consider the returns to research and development undertaken by firms?
A public good
What are some of the effects that population growth has on economic growth?
1) Population growth may stretch the supply of natural resources.
2) It may reduce the amount of capital available for each worker (dilute the capital stock).
3) It may enhance the rate of technological progress (more scientists and engineers).
Explain how this is a positive externality:

An educated person might generate ideas about how best to produce goods and services.
This educated person might enter society’s pool of knowledge and provide an external benefit to others (This shows how HUMAN CAPITAL is important for economic growth because it conveys positive externalities).
A beneficial impact of one person's actions on the well-being of a bystander is referred to as:
A positive externality
Why does a firm's total cost curve become steeper as output increases?
There are diminishing returns.
What is the opportunity cost of an increase in economic growth?
A reduction in current consumption.