Foundations of Macroeconomics: Economic Growth

Comprehensive vocabulary flashcards covering key definitions, mathematical rules, and economic growth concepts from the Foundations of Macroeconomics lecture notes.

Long-run economic growth

A sustained increase in real GDP per person.

Real GDP

GDP measured at constant prices, meaning it increases only when the economy produces more output rather than when prices rise.

Real GDP per person

Real GDP divided by the population, measuring the average standard of living rather than the total size of the economy.

Extensive growth

Growth that comes from having more workers, more hours, or simply more people.

Intensive growth

Growth that comes from producing more with each person and each hour worked.

Growth rate

The percentage change in a variable over a period, calculated as $g_X = \frac{X_t - X_{t-1}}{X_{t-1}}$.

Compounding

Growing on top of previous growth, such that the variable follows $X_t = X_0(1 + g)^t$.

Rule of 70

An approximation stating that the number of years required for a variable to double is approximately $70$ divided by the growth rate in percent ($\text{Years to double} \approx \frac{70}{\text{growth rate in percent}}$).

Product rule

An approximation rule for growth rates stating that if $Z = X \cdot Y$, then $g_Z \approx g_X + g_Y$.

Ratio rule

An approximation rule for growth rates stating that if $Z = \frac{X}{Y}$, then $g_Z \approx g_X - g_Y$.

Power rule

An approximation rule for growth rates stating that if $Z = X^a$, then $g_Z \approx a\,g_X$.

Labour productivity

The amount of output produced in one hour of work, expressed as $\frac{\text{GDP}}{\text{Hours worked}}$.

Physical capital ($K$)

The machines, buildings, and infrastructure used in production.

Human capital ($H$)

The knowledge, skills, and health that workers carry with them.

Technology ($A$)

How well an economy combines its inputs; also known as total factor productivity.

Proximate causes of growth

The direct economic inputs to production: physical capital ($K$), human capital ($H$), and technology ($A$).

Fundamental causes of growth

Institutions, geography, and history, which explain why some countries accumulate capital and innovate more than others.

Rival good

A good that cannot be used by more than one person at the same time, such as land, wheat, or firewood.

Nonrival good

A good, such as an idea or formula, that can be used by multiple people or firms simultaneously without being depleted.

Directed (biased) technical change

Innovation shaped and directed by prices, the size of the market, and the head start of existing technologies.

Inequality between countries

Differences in average income measured across different countries.

Inequality within countries

Differences in income among people living inside the same country.

Citizenship premium

The portion of an individual's income explained purely by the country where they live, estimated by Branko Milanovic to account for more than half of global income differences.

Degrowth

The view that rich countries should deliberately reduce their use of energy and materials.

Green growth

The view that technological innovation can make economic growth environmentally sustainable.

Decoupling

A situation where an economy achieves economic growth while simultaneously reducing its emissions.

Leapfrogging

The process by which poorer countries skip older intermediate technologies and directly adopt newer ones.

Production function

A rule or mathematical relationship that relates inputs to the resulting output.

Cobb–Douglas production function

A specific production function given by $Y = A K^\alpha L^{1-\alpha}$ (or $y = A k^\alpha$ in per-worker terms), with $0 < \alpha < 1$.

Constant returns to scale

A production property where doubling all inputs simultaneously doubles total output.

Diminishing returns

The property that each extra unit of an input adds less additional output than the previous unit.

Capital share ($\alpha$)

The share of total income paid to capital, which is roughly equal to $\frac{1}{3}$.

Learning by doing

The acquisition of skills, knowledge, and productivity gained directly through production experience on the job.

Potential GDP

The level of output produced when resources are fully employed, calculated as total hours of work multiplied by labour productivity.

Growth accounting

The method of splitting the growth rate of output per worker into contributions from capital accumulation and technology ($g_y \approx g_A + \alpha\,g_k$).

Solow residual

The portion of output growth per worker not explained by capital growth ($g_A \approx g_y - \alpha\,g_k$), representing the contribution of technology.

Malthusian trap

A condition in which technological advances lead to a larger population rather than sustained increases in income per person.

Subsistence income ($\bar{y}$)

The income level at which the population stops growing and remains stationary in the Malthusian model.

Fixed factor

An input whose total supply cannot expand over time, such as land ($X$) in the Malthusian model.

Demographic transition

The historical fall in birth rates and family sizes that occurs as countries become richer.

Steady state

A condition in which the key variables of an economic model stop changing over time.

Depreciation ($\delta$)

The fraction of the existing capital stock that wears out in each period.

Conditional convergence

The tendency for poorer countries to grow faster than richer ones and converge toward their own steady state when sharing similar rates of saving, population growth, and education.