Chapter 11: Economic Growth and the Wealth of Nations

Vocabulary flashcards defining fundamental macroeconomic concepts related to economic growth, factors of production, and growth-promoting institutions from Chapter 11.

Gross Domestic Product (GDP)

A measure of the total output of an economy, where higher levels indicate a wealthier society capable of providing better living standards.

Economic Growth

The percentage change (growth rate) of real GDP per capita over time, which reflects changes in living standards, reduces human suffering, and extends lifespans.

Real Per Capita GDP Growth Rate Formula

The mathematical relationship used to approximate the growth of living standards: $\text{Economic Growth} \approx \%\Delta \text{ in nominal GDP} - \%\Delta \text{ price level} - \%\Delta \text{ population}$.

Rule of 70

An economic rule of thumb stating that if an economic variable grows at an annual rate of $x\%$, the variable will double in approximately $\frac{70}{x}$ years.

Resources

The inputs, or factors of production, utilized to produce goods and services, encompassing natural resources, physical capital, and human capital.

Natural Resources

Physical land and materials found in nature—such as fertile farmland, forests, coal, diamonds, and oil sands—used in economic production.

Physical Capital

Man-made tools, equipment, structures, and infrastructure—including machines, computers, factories, and roads—used by workers to produce goods and services.

Human Capital

The resource represented by both the quantity of labor available and the quality of that labor, specifically the knowledge, education, and skills of the workforce.

Brain Drain

The departure or emigration of educated and skilled professionals from developing nations to other economies, limiting local productivity growth.

Technology

The knowledge available for use in producing goods and services, serving as the essential recipe that dictates how resources are combined.

Technological Advance

The introduction of new knowledge or production methods (such as Henry Ford's assembly line) that enables an economy to generate more or higher-quality output using the same resources.

Institutions

The significant practices, relationships, organizations, and formal and informal rules in a society that shape incentives and economic decision-making.

Private Property Rights

The legal institutions granting individuals the authority to own, utilize, maintain, and transfer resources and retain the income produced, providing the primary incentive for voluntary production.

Rule of Law

An institutional framework ensuring clear, enforceable legal standards and political stability, which prevents the corruption and arbitrary state actions that discourage long-term investment.

Competitive Markets

Market structures featuring low barriers to entry that allow new firms to enter, exerting pressure on existing producers to minimize production costs, innovate, and improve product quality.

Open Markets

An institutional environment that supports international trade based on comparative advantage and enables the cross-border movement of capital to finance domestic investment.

Efficient Taxes

Tax structures designed to generate sufficient public revenue to finance essential government operations while minimizing unintended distortions to economic behavior and growth incentives.

Dual Mandate

The statutory responsibility assigned to the Federal Reserve to implement monetary policies that promote maximum employment and long-run price stability.