Chapters 7-9 Notes

GDP per Capita

The average income per person in a given area, reflecting the economic output divided by the population.

Rule of 70

A formula to estimate the number of years required to double an investment or income based on a fixed annual rate of growth.

Productivity

The measure of the efficiency of production, specifically the amount of goods and services produced per hour of labor.

Physical capital per worker

The stock of tools, equipment, and buildings used to produce goods and services.

Human capital per worker

The knowledge and skills that workers acquire through education and training.

Natural resources per worker

Inputs into the production of goods and services that are provided by nature.

Technological Knowledge

The understanding of the best ways to produce goods and services, often referred to as a public good.

Diminishing returns

The principle that as more of an input is added to production, the additional output produced from that input will eventually decrease.

Catch-up effect

The phenomenon where poorer economies grow at faster rates than richer ones, allowing them to catch up over time.

Investment from abroad

Capital investment from foreign entities which can lead to economic growth.

Foreign direct investment

A capital investment owned and operated by a foreign entity.

Foreign portfolio investment

An investment financed by foreign entities but operated by domestic residents.

Opportunity cost of education

The potential income lost by students while they are in school instead of working.

Positive externalities

Benefits that result from an activity that affect third parties, often seen with investments in human capital.

Political stability

The condition of having a stable government, which is important for business operation and economic growth.

Property rights

The legal rights to possess, use, and manage property, which must be respected for economic systems to function.

Free trade

International trade free from government interference, allowing for greater efficiency and economic growth.

Research and development (R&D)

Investments made by companies to innovate and introduce new products, critical for long-term economic growth.

Public good

A good that is non-rivalrous and non-excludable, meaning that one person's use does not reduce its availability to others.

Labour force

The total number of people employed or actively seeking employment.

Unemployment rate

The percentage of the labor force that is unemployed.

Frictional unemployment

Short-term unemployment that occurs when people are in between jobs or entering the workforce.

Structural unemployment

Lengthy unemployment resulting from changes in the economy, such as technological advances or shifts in industries.

Collective bargaining

The process through which unions negotiate with employers on behalf of workers regarding wages and working conditions.

Efficiency wages

Wages that are higher than the market equilibrium, paid to increase worker productivity.

Crowding out

A phenomenon where government borrowing leads to decreased investment in the private sector.

National savings

The total savings of a nation, equal to private savings plus public savings.

Budget deficit

A situation where a government’s expenditures exceed its revenues.

Market for loanable funds

The interaction between borrowers and lenders in an economy where funds are exchanged for interest.