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41 Cards in this Set
- Front
- Back
Real GDP shows:
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standard of living and stage of economic development
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What is the best variable for measuring economic growth?
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Y/population
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What do these variables stand for? Y, L, K, H, N, F, A
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Y = total output
L = labor K = physical capital H = human capital N = natural resources F = unspecified form A = technology |
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4 different ways to express Y/population
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Real GDP/population
Y/person Per capital income Per capita real GDP |
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Power of compounding
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a small difference in growth rates, will make big differences in size of economy over time
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Economic reasons for poorer countries pass up rich countries over time
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an increase of any aspect of labor of productivity
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Definition of labor productivity
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the quantity of goods and services produced from each unit of labor input
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Definition of production function
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the relationship between the quantity of inputs used and the quantity of output produced
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Increase in Y/person is caused by:
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increase in growth rate of labor productivity
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4 determinants of productivity
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1. K/L = physical capital/labor
2. H/L = human capital/labor 3. N/L = natural resources/labor 4. A = technological knowledge |
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Def. of physical capital
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equipment and structures
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Def. of human capital
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amt of skilled embodied in work force, usually measured by education and amt of training
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Def. of natural resources
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inputs in the production process that are supply by nature, like land rivers and mineral deposits
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How is labor measured?
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By the number of hours worked
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Level of productivity is measured by:
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the levels of its determinants
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Growth rate of labor productivity depends on:
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growth rates of each of its determinants
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Def. of Diminishing returns to capital
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the increase in output from an extra unit of an input declines as the quantity of the input increases
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How the amount of natural resources can change the level of per capital income
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the natural resources could increase causing more Y/person or it could decrease causing less Y/person
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The unique characteristic of knowledge
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one person's consumption of that knowledge does not reduce the amount available for others to consume
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Why is knowledge important for poor countries?
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The more they know about machines/technology, new ways to produce goods, and how to use less inputs to produce goods, increases their productivity
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Def. of proprietary knowledge
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whoever has this knowledge gets it and keeps it
Ex. Patents |
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Capital stock =
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nations available supply of plant, equip, and software
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Investment =
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flow of resources into the production of new capital
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Saving by households =
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Their savings go to financial institutions or banks and used by businesses for investments
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If government encouraged saving and investment spending what would happen?
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it would increase productivity and Y/person
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How would encouragement on saving and investment raise Y/person?
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Savings > businesses can invest > investment equals more capital stock > capital is an input in production
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Will the increase in savings help for awhile and/or in the long run?
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It helps Y/L and Y/person increase for "a while", but diminishing returns sets in and slowly these 2 variables get lower and lower
Awhile COULD mean a couple decades for some countries |
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2 sources a country can get funds
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1. saving by domestic country
2. funds from foreigners |
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What the World Bank does
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organization that sets up low-interest loans for poor countries and rich nations provide the funds for the loans
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Foreign direct investment
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A capital investment that is owned and operated by
a foreign entity |
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Foreign portfolio investment
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An investment that is financed with foreign money but oper-
ated by domestic residents |
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Greater education leads to:
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greater productivity and increase in Y/person
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The argument for public funding of education
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a person gains knowledge from education and comes up with an idea and shares it and everyone gains from it.
Meaning the return to society from this persons investment in education is greater than the return to the individual |
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What 3 policies could be made to increase H/L?
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1. encourage attendance
2. improve quality of education 3. make low-interest loans available for college |
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Health and nutritions vicious cycle
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poor health = low productivity and low Y/person
Rich countries and World bank can step in at this point |
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2 sources for funds for Research and development
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Private sector and government (it encourages research)
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What else will happen when R&D increases?
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Current consumption goods will need to go down (trade off)
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What would happen if there were no property rights or political stability?
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No one would want to invest to increase capital stock, therefore decreasing Y/L and Y/person!
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How can free trade help a country?
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A poor country can import new technology which increases productivity
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What are the 8 policies to promote economic growth
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1. capital formation (saving and investments)
2. foreign investment 3. improving education 4. improving health and nutrition 5. Research and development 6. property rights and political stability 7. Free trade 8. Population |
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Def. of Catch up effect
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countries that start off poor tend to grow more rapidly than countries that start off rich
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