This chapter examines factors that contribute to long run economic growth. As you read the chapter, Compare US economic growth and living standards with other countries. -The growth rate was not the highest, however the United states did actually have one of the highest standards of living compared to other countries. Outline major factors that lead to growth (include definitions, description or example) and for each, list government policies that may encourage each one.
-Saving & Investment-Increases the amount of capital a country has.
-Investment From Abroad-A capital investment that is owned by a foreign entity. Can increase the flow of money into poor countries.
-Education- A form of human capital, it creates positive externalities.
Health and Nutrition- A healthy nation leads to much more productive workers. You should also be able to:
-Define productivity. – The quantity of goods and services produced from each unit of labor input.
-discuss whether the availability of natural resources are a limit to growth -These resources are not a limit to economic growth because if they were then they would be much more expensive, and also we find new ways to replace them. -discuss the opportunity costs of investing in capital.
-discuss the role of physical capital in economic growth, the “catch-up” effect and diminishing returns Diminishing returns- As the stock of capital rises the extra output produced from an additional unit of capital falls. Catch up effect- The effect of initial conditions on subsequent growth. Easier to grow if you start out poor. Physical capital- The stock of equipment and structures used to produce goods and services. -know the difference between foreign direct investment and foreign portfolio investment, and their role in economic growth Direct investment-Capital investment that is owned and operated by a foreign entity. Foreign portfolio investment -An investment that is financed with foreign money but operated by domestic residences. -know the role of the World Bank in facilitating foreign investment Uses money flow from more wealthy countries and distributes loans to more poor countries. -What was Thomas Malthus’s opinion of population growth?
-Growing population would make it difficult for society to provide for itself. We would forever live in poverty.
Naked Economics Chpt 6 Productivity and Human Capital
While reading this chapter, keep notes on the following:
How will you benefit from being educated?
How will the economy benefit from its citizens being educated? How do advancements in technology/ trade affect unskilled jobs? Skilled jobs? What does the author say about income inequality?
Also, be able to define the following terms:
lump of labor fallacy- The contention that the amount of work available to laborers is fixed. creative destruction- Describes the way in which capitalist economic development arises out of the destruction of some prior economic order. zero-sum game- A mathematical representation of a situation in which a participant’s gain (or loss) of utility is exactly balanced by the losses (or gains) of the utility of the other participant(s). outsource-The contracting out of a business process,
rule of 72- Method for estimating an investment’s doubling time. The rule number ( e.g. 72 ) is divided by the interest percentage per period to obtain the approximate number of periods (usually years) required for doubling.