Chapter 20

Economic growth and labor productivity

What are property rights?

The rights of individuals and firms to own property and use it as they see fit.

What are contractural rights?

Based on property rights and allow individuals to enter agreements with others regarding the use of their peppery through the legal system.

What is labor productivity?

How much a worker can produce per hour.

How to calculate labor inputs?

Size of employed work force + average hours of work

What are labor inputs?

Hours of work

How to calculate labor productivity?

Human capital + technological change + economies of scale

What are economies of scale?

The more production means the cost per unit decreases

Who do we exclude from labor productivity?

Government workers and farmers

How to calculate sustained economic growth?

GDP at starting date \* (1 + GDP growth rate)^year

How to calculate compound growth rate?

Present value \* (*1 + growth rate)^time*

How to calculate the rule of 70?

approximate number of years to double the GDP = 70/annual percentage rate of growth

What’s physical capital?

Infrastructure, increase of the quantity/quality of physical goods like tools or equipment

What is human capital?

Accumulated knowledge, skills, and expertise that the average worker in an economy possesses

What are the components of economic growth?

Physical capital, human capital, technology, and capital deepening

What is capital deepening?

An increase of capital per person/human capital

What are Luddites?

People who protest against technology as it takes away jobs

What is production function?

The technical relationship by which economic inputs are turned into outputs that consumers use

What is the aggregate production function?

The connection from inputs to outputs for the entire economy

What is residual?

The part of economic growth unexplained by measures inputs and is typically attributed to growth in technology .