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52 Cards in this Set
- Front
- Back
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what does economic growth mean
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rise in the standard of living
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what is the most straightforward way to measure living standards
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real gross domestic product per capita
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formula for real gdp per capita
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GDP / population
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why isnt real gdp per capita a good way to measure standard of living
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- leisure time and other things not counted in the gdp have different value
- gdp might only be distributed to some people |
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what is the rule of 70
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if a variable is growing by X percent per year, the variable will double in 70/X
ex: gdp per capita rises by 2% a year, gdp per capita will double in 70/2= 35 years |
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what countries have recently experienced a lot of growth
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singapore
south korea china india vietnam ghana uganda niger |
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what must happen for real gdp per capita to grow
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real gdp must grow faster than population
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what are the determinants of real gdp
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1. productivity
2. average hours 3. EPR 4. size of pop |
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d: productivity
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the output produced by the average worker in an hour
total output / total hours worked |
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productivity formula
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total output / total hours worked
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average employment formula
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number of hours worked / total employment
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d: employment population ratio (EPR)
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percentage of the population that is working
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EPR formula
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total employment / population
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economy's growth equation
(real gdp per capita long equation) |
%Δreal gdp per capita = %Δproductivity + %Δ average hours + %ΔEPR
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EPR increases only when...
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total employment rises at a faster rate than population
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ways the government can increase labor supply
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1) decrease income taxes
2) decrease transfer payments bc they provide disincentives to work 3) raise the retirement age |
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ways the government can increase labor demand
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1) offer subsidies for education and training
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to have sustained economic growth the EPR must...
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continue to increase each year
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what is the driving force in increasing living standards
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increases in productivity
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d: capital per worker
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total capital stock / total employment
a rise in this causes productivity to rise |
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the production function shifts upward when...
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the capital stock increases
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what determines how fast the capital stock rises
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the rate of planned investment spending in the economy
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the capital stock will rise when...
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investment is greater than depreciation
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how does the government make investment spending more profitable for firms (increase the demand for loanable funds, increase planned investment)
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1) reduce the corporate profits tax
2) elimination of investment tax credit (subsidizes corporate investment) 3) decrease the budget deficit would increase planned investment |
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d: corporate profits tax
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tax on the profits earned by corporations
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d: investment tax credit
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a reduction in taxes for firms that invest in new capital
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government policies used to increase saving
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1) decrease capital gains tax (the less people have to pay on the gains for bonds the more willing they are to buy them)
2) use a consumption tax 3) decreasing transfer payments since they provide a safety net, this would increase the need to save |
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d: capital gains tax
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tax on profits earned when a financial asset is sold for more than its acquisition price
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d: consumption tax
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tax on the income that households spend (savings isnt taxed, so this form of taxation increases spending)
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a decrease in the budget deficit would...
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increase planned investment
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ways to increase physical capital
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1) decrease in the budget deificit would lower IR and allow for more people to borrow money for college
2) income tax reductions |
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how does diminishing returns limit growth from more capital
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if you give someone more technology on how to farm when they already have a lot of technology, the increase in output wont be as significant if you give a backhoe to someone that only uses a shovel to farm
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how does depreciation limit growth from more capital
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a greater and greater share of the capital stock is needed to replace the amount of capital that depreciates every year
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how does human capital depreciate
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when workers retire and are replaced by new workers
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d: technological change
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the invention or discovery of new inputs, new outputs or new production methods
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two effects on the production function when a piece of capital stock w new technology is introduced
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1) increase in production (shift upward) through the increase in capital
2) boost to production because of the new productivity enhancing technology |
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the faster the rate of __A___, the greater the growth rate of __B__, the faster the rise in __C__
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A) technological change
B) productivity C) living standards |
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what does making use of a new technology also require
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production of new physical capital
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d: discovery based growth
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economic growth primarily in advanced countries based on technological change from new discoveries
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where does increases in technology/capital stock come from in rich countries
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discovery based growth
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does economic growth based on discoveries suffer from depreciation
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no, ideas cant depreciate
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where do funds for research come from
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loanable funds market (planned investment)
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how do you increase R&D (research and development) spending
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any policy that will increase investment spending
1) lower capital gains taxes 2) lower corporate profits taxes 3) reduce budget deficit government can also directly fund research |
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ways the government can influence the pace of technological change
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1) enact policies that increase invesment spending for R&D projects or directly fund R&D projects
2) provide institutional infrastructure that encourages innovation (laws) |
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how can poor countries catch up to rich countries
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can adapt new technology from rich counties without making new discoveries themselves
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d: catch up growth
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economic growth in less advanced countries based on icnreasing capital per worker from low levels and adopting technologies already used in more advanced countries
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how have some poor countries been able to experience catch up growth whereas other countries have not
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the government has a lot to do with it
stable legal system that protects prop rights, honest government, stable financial situation, international openness, and access to education |
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d: supply side effects
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fiscal policy can change total output by altering the quantity of resources available for production
effects on total output |
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can fiscial policy affect demand through changing total spending
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no fiscal policy has no demand side effects
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does fiscal policy have supply side effects
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yes, the government can change how many resources are available for production having supply side effects
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the more capital goods we have the...
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less consumption goods we have
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list barriers to catch up growth in the poorest countries
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1) extremely low output per capita
2) high population growth rates 3) poor insitutions |
