Economic Growth Chapter 8

economic growth

1. an increase in real GDP occurring over some time period.
2. an increase in real GDP per capita occurring over some time period.

Growth rates are usually_________

positive

Real GDP per capita

(capita per output) the amount of real output per person in a country

rule of 70

a method for determining the number of years it will take for some measure to double, given its annual percentage increase.

modern economic growth

the historically recent phenomenon in which nations for the first time have experienced sustained increase in real GDP per capita

leader countries

as it relates to economic growth, countries that develop and use advanced technologies, which then become available to follower countries

follower countries

as it relates to economic growth,countries that adopt advanced technologies that previously were developed and used by leader countries

supply factors

an increase in the availability of a resource, an improvement in its quality, or an expansion of technological knowledge that makes it possible for an economy to produce a greater output of goods and services.

demand factor

the increase in the level of aggregate demand that brings about the economic growth made possible by an increase in the production potential of the economy

efficiency factors

the capacity of an economy to combine resources effectively to achieve growth of real output that the supply factors (of growth) make possible.

labor productivity

total output divided by the quantity of labor employed to produce it; the average product of labor or output per hour of work.

labor-force participation rate

the percentage of the working age population that is actually in the labor force

growth accounting

the bookkeeping of the supply-side elements such as productivity and labor inputs that contribute to changes in real GDP over some specific time period.

infrastructure

the capital goods usually provided by the public sector for use by its citizens and firms (for example, highways, bridges, transit systems, wastewater treatment facilities, municipal water systems, and airports.

human capital

the knowledge and skills that make a person productive

economie of scale

reductions in the average total cost of producing a product as as the firm expands the size of plant (its output) in the long run; the economies of mass production.

information technology

new and more efficient methods of delivering and receiving information through the use of computers fax machines, wireless phones, and the Internet

start-up firms

a new firm focused on creating and introducing a particular new product or employing a specific new production or distribution method

increasing returns

an increase in a firm's output by a larger percentage than percentage increase in its inputs

network effects

increases in the value of a product to each user, including existing users, as the total number of users rises

learning by doing

achieving greater productivity and lower average total cost thorough gains in knowledge and skill that accompany repetition of a task; a source of economies scale

How is a nation's economic growth measured?

1. As an increase in real GDP over time or
2. As an increase in real GDP per capita over time.

Real GDP in the U.S. has grown at an average rate of about_____

3.2%

Real GDP pr capita grown at roughly ______

2%

What are the characteristics of modern economic growth?

institutional structures that encourage savings, investment, and the development of new technologies.

What are the growth-promoting institutional structures?

1. strong property rights
2. patents and copyrights
3. efficient financial
4. literary and widespread education
5. free trade
6. a competitive market system.

countries that are poor can grow _______ than countries that are currently rich because the growth of real GDP per capita for rich countries is limited to 2% per year.

faster

The determinants of economic growth to which we an attribute changes in growth rates included 4 supply factors..

1. changes in quantity and quality of natural resources
2. changes in the quantity and quality of human resources
3. changes in the stock of capital goods
4. improvement of technology
5. one demand factor (changes in total spending) and one efficiency fac

What does growth accounting do?

it attributes increases in real GDP either to increases in the amount of labor being employed or to increases in the productivity of the labor being employed

Increases in the U.S. real GDP are mostly the result of .........

increases in the labor productivity

What can increases in the labor productivity can be attributed to?

1. technological progress
2. increases in the quantity of capital per worker
3. improvements in the education and training of workers
4. the exploitation of economies of scale
5. improvements in the allocation of labor across different industries

over long time periods, the growth of labor productivity underlies an economy's growth of real wages and its ________ of ________

standard of living

U.S. productivity rose by ___% annually between 1995 and 2009, compared to ___% annually between 1973 and 1995

2.8 ; 1.5

This post-1995 increase in the average rate of productivity growth is based on....

a) rapid technological change in the form of the microchip and information technology b) increasing returns and lower per-unit costs c) heightened global competition that holds down prices

The main sources of increasing returns in recent years are...

a) the use of more specialized inputs as firms grow b) the spreading of development costs c) simultaneous consumption by consumers d) network effects and e) learning by doing. Increasing returns mean higher productivity and lower per-unit production costs