Chapter 6 Economic Growth and Labor Productivity

These flashcards cover key concepts and details related to economic growth and labor productivity as discussed in Chapter 6.

What factors contribute to real GDP per hour of labor growth?

The growth of physical capital, persistent advances in technology, and growth of human capital.

What happens when the real wage rate is higher than the equilibrium wage rate?

It results in higher than normal unemployment.

Moving along the production function shows the relationship between which inputs?

Labor input and real GDP.

What causes a movement along the aggregate production function?

A change in the quantity of labor.

What causes a shift in the aggregate production function?

Changes in physical human capital or technology.

If the money wage rate is $15.00 and the price level is 120, what is the real wage rate?

$12.50 per hour.

What is the effect of an increase in labor productivity on real GDP per hour worked?

It raises real GDP per hour worked.

What does an advance in technology result in with respect to labor demand?

A rightward shift of the labor demand curve.

According to new growth theory, what drives technological change?

Firms' attempts to increase their profit.

Which systems can foster economic growth by providing incentives?

Markets, monetary exchange, and property rights.

What activities encourage faster economic growth?

Investment in new physical and human capital.

What does classical growth theory suggest about real wages and population growth?

Population growth increases, driving real wage back to subsistence level.

What does the law of diminishing returns state?

Output increases at a decreasing rate as more labor is added to fixed capital.

What do property rights govern?

The ownership, use, and disposal of goods and factors.

How does education affect human capital and productivity?

More education increases human capital and productivity.

How is labor productivity defined?

The average amount of real GDP produced per hour of labor.

What did classical economists believe about real wages?

Real wages would never rise above their subsistence level in the long run.

What is neoclassical growth theory's view on technological progress?

It causes GDP per person growth because it increases demand for capital.

What does neoclassical growth theory predict regarding growth rates?

The growth rates of all nations will converge.

What is the subsistence real wage rate?

The minimum real wage rate necessary to sustain life.

If real GDP per person grows at 4 percent per year, how many years to double?

Approximately 17.5 years.

If an economy grows at 10 percent per year, how long to grow GDP from $20 million to $80 million?

Approximately 7 years.

What is a worker's stock of skill and knowledge called?

Human capital.

What is required for ongoing economic growth in real GDP per person?

Investment in human capital, new physical capital, and discovery of new technologies.

What preconditions are necessary for economic growth?

Markets, property rights, and a monetary exchange system.

What increases labor productivity?

Saving and investment, new technology, and accumulation of human capital.

What happens when population increases in relation to potential GDP?

It raises potential GDP but can lower real GDP per hour of labor.

At equilibrium in the labor market, what is true?

Actual GDP equals potential GDP.

What occurs if quantity of labor demanded exceeds quantity supplied?

The real wage rate rises to eliminate the labor-market shortage.

When there is an increase in labor productivity, what happens to the labor demand curve?

It shifts rightward.