Chapter 12 Economic Growth – Flashcards

Economic growth is usually measured by the annual percent change in real output of goods and services per capita. Improvements in and greater stocks of land, labor, capital, and entrepreneurial activity will lead to greater economic growth and shift the production possibilities curve outward.

According to the Rule of 70, if you take a nation's growth rate and divide it into 70, you have the approximate time it will take to double the income level.

Rising productivity plays a key role in determining the standard of living and long run economic growth. The amount of goods and services a worker can produce per hour.

The factors that contribute to economic growth are increased quantity and quality of labor, natural resources, physical capital, and technological advances.

Labor, or human capital, can be improved through investment in human capital---that is, education, on the job training, and experience can improve the quality of labor.

Generally, higher levels of saving will lead to higher rates of investment and capital formation and therefore, to greater economic growth.

Innovations resulting from investments in research and development have the potential to accelerate economic growth even further.

Economic growth rates tend to be higher in countries where the government enforces property rights more vigorously.

Education, investment of human capital, is important to improving standards of living and economic growth.

Gross domestic product is the value of all final goods and services produced within a country during a given time period.

All of our spending ends up as someone's income. Every buyer has a seller.

Four catagories of spending are used in the GDP calculation: consumption, investment, government purchases, and net exports. GDP= C+I+G+(X-M)

Net exports are calculated by subtracting total imports from total exports.

National income is measured by adding together the payments to the factors of production---wages, rent, interest, and profit.

Personal income measures the amount of income received by households before personal taxes.

It is difficult to compare real GDP over time because of the changing value of money over time.

Per capita real GDP is real output of goods and services per person. In some cases, real GDP may increase, but per capita real GDP may actually drop as a result of population growth.

Factors making it difficult to use GDP as a welfare indicator include non-market transactions, the underground economy, leisure, externalities, and the quality of goods.

Non-market transactions are the exchanges of goods and services that do not occur in traditional markets and for which no money is exchanged.

The underground economy is the unreported production and income that comes from legal and illegal activities.