ECONOMIC GROWTH Lecture Notes

Vocabulary flashcards covering key concepts from the 'ECONOMIC GROWTH' lecture.

Economic growth

The sustained expansion of production possibilities measured as the increase in real GDP over a given period.

Economic growth rate

The annual percentage change of real GDP.

Standard of living

Depends on real GDP per person, which is real GDP divided by the population.

Real GDP per person

Real GDP divided by the population; grows only if real GDP grows faster than the population.

Economic growth (versus business cycle expansion)

The expansion of potential GDP, distinct from the economy returning to full employment in an expansion phase of the business cycle.

Rule of 70

States that the number of years it takes for the level of a variable to double is approximately 70 divided by the annual percentage growth rate of the variable.

Potential GDP

The quantity of real GDP produced when the quantity of labor employed is the full-employment quantity.

Aggregate production function

Tells us how real GDP changes as the quantity of labor changes when all other influences on production remain the same.

Real wage rate

The money wage rate divided by the price level.

Aggregate hours

The total number of hours worked by all the people employed.

Labor productivity

The quantity of real GDP produced by an hour of labor; equals real GDP divided by aggregate labor hours.

Fundamental precondition for labor productivity growth

The incentive system created by firms, markets, property rights, and money.

Physical capital growth

The accumulation of new capital which increases capital per worker and labor productivity.

Human capital growth

Acquired through education, on-the-job training, and learning-by-doing, a fundamental source of labor productivity growth.

Technological advances

The discovery and application of new technologies and new goods, contributing immensely to increasing labor productivity.

Classical growth theory

The view that the growth of real GDP per person is temporary and eventually returns to a subsistence level due to population explosion.

Neoclassical growth theory

The proposition that real GDP per person grows because technological change induces a level of saving and investment that makes capital per hour of labor grow, ending only if technological change stops.

New growth theory

Holds that real GDP per person grows indefinitely due to choices people make in the pursuit of profit; knowledge capital does not experience diminishing returns.