Chpt 16: Creating an Environment for Growth and Prosperity Fit

Why is economic growth important?

It allows a country to pay back national debt and take on more debt if GDP is growing.

What does an increase in GDP indicate?

It represents an increase in productivity and income, leading to higher living standards.

How is GDP per capita calculated?

GDP per capita is calculated by dividing GDP by the total population.

What does a higher GDP per capita imply?

It generally indicates a higher average income and standard of living for individuals.

What historical period saw significant economic development according to GDP?

Most economic development occurred post-1950, largely due to farming improvements and technology.

What is the relationship between GDP per capita and life expectancy?

Wealthier countries tend to have better access to medical care, food, and support, leading to higher life expectancy.

How does GDP per capita relate to access to clean water?

Most countries have achieved near 100% access to clean water, making future improvements less dramatic.

What does the Global Hunger Index measure?

It measures the severity of starvation on a scale from 0 to 100, with 100 being the worst.

How is GDP per capita related to literacy rates?

Wealthier countries can afford better education, resulting in higher literacy rates.

What is one source of economic growth related to trade?

Gains from trade occur when both parties benefit, such as trading labor for income or importing goods.

What role does entrepreneurship play in economic growth?

Entrepreneurship drives innovation and the introduction of new techniques to increase output.

What is 'creative destruction'?

It is the process where innovation destroys existing economic structures to make way for new ones.

Give an example of creative destruction.

The replacement of horses with personal vehicles or traditional watches with smartwatches.

What is the difference between physical capital and human capital?

Human capital refers to knowledge and skills, while physical capital refers to machinery and tools.

How do physical and human capital contribute to economic growth?

They enhance efficiency and output, allowing for more productive use of resources.

What can governments do to promote economic growth?

Governments can implement institutions and policies that support growth.

What is the importance of secure property rights in an economy?

Secure property rights ensure individuals feel confident to invest and start businesses, knowing their assets won't be confiscated.

How does the rule of law protect property rights?

The rule of law enforces contracts and protects individuals from cheating, providing confidence in economic transactions.

What impact does political instability have on property rights?

Political instability can lead to increased cheating on contracts and property confiscation, undermining economic confidence.

What is the relationship between stable money and economic planning?

Stable money and prices allow the public to plan for the future, while instability drives investment elsewhere.

What was a significant consequence of hyperinflation in Zimbabwe?

Between 2003 and 2008, prices doubled every 24 hours, leading to the Zimbabwean dollar losing 99.9% of its value compared to the US dollar.

What role do competitive markets play in an economy?

Competitive markets lower costs for consumers and drive innovation by forcing firms to compete on price and quality.

What are chaebols, and how do they affect competition in South Korea?

Chaebols are family-owned conglomerates that control prices and restrict competition, leading to higher prices and less innovation.

How does the NCAA's control over athletes exemplify a lack of competition?

The NCAA's monopsony on players restricts their ability to profit from endorsements, limiting their market options.

What are the negative effects of high taxes and regulations on market entry?

High taxes and regulations create barriers to entry, reduce competition, and concentrate power among wealthier firms.

What is trade openness, and why is it important?

Trade openness allows free exchange with foreigners, enhancing access to goods and services and fostering economic growth.

What is an example of a quota imposed by the US?

The US has a quota on Canadian cotton or man-made fiber apparel limited to 40 million units.

What percentage of US exports does Canada account for?

Canada accounts for 17% of US exports, worth approximately $307 billion.

What is the significance of the US being the world's largest service exporter?

The US leads in exporting services like healthcare and technology, contributing significantly to its economy.

How do licensing requirements affect job markets?

Licensing requirements can create monopolies in professions, restricting job opportunities and raising costs.

What happens to an economy when trade restrictions are imposed?

Trade restrictions limit access to cheaper goods and services, leading to higher prices and reduced economic efficiency.

What is the impact of competitive markets on consumer prices?

Increased competition in markets typically leads to lower prices for consumers.

How does the lack of competition affect firms' pricing strategies?

Without competition, firms can raise prices and restrict output, harming consumers.

What is the relationship between regulations and market entry?

Excessive regulations can hinder new entrants, reducing competition and innovation in the market.

What are the potential consequences of high taxes on startups?

High taxes can deter new business formation, leading to a less competitive market.

How does political unrest affect economic growth?

Political unrest can disrupt economic activities, decrease investment, and lead to instability in property rights.

What is the role of institutions in promoting economic growth?

Institutions create a framework for secure property rights, enforce contracts, and promote competitive markets.

What is the effect of inflation on currency value?

High inflation can drastically reduce the value of a currency, making it less reliable for transactions.

Why is it important for a central bank to maintain independence?

An independent central bank can make decisions free from political pressure, helping to stabilize the economy.

What is a monopsony, and how does it affect workers?

A monopsony is a market situation where a single buyer controls the market, often leading to lower wages and fewer job opportunities.