Lesson 5.3: Economic Growth

Flashcards made from a presentation segment created as a lesson on economic growth.

Growth

Factor in the economy that allows for more and better goods over time, improving the standard of living

• Most commonly measured by the change in real GDP over time

Real GDP

Measurement of GDP accounting for inflation

• Must grow as fast as the population does for definite growth; shown in the measurement of this per capita

• Can exclude other factors in life quality, such as stress, wealth distribution, or environmental state

Productivity

The engine for economic growth and rising real GDP

• Allows for greater output per worker with better skills, capital, or technology

Capital deepening

Increasing the capital-to-worker ratio to allow for more productivity per worker; can be seen through investments in human and physical capital

Human capital

Capital that includes education, training, and experience for people

Physical capital

Capital that includes tools, machines, and equipment for people

Savings

Money set aside for later

• Allows for greater capital deepening as financial intermediaries support investments in facilities and equipment

• Promoted by many nations to raise GDP and standards of living

Capital formation

The saving and investment cycle that creates more money within the economy as loans are made

Taxation

Power a government has to influence capital formation

• Higher levels on individuals lead to less disposable income and lower savings rates

• Using this for infrastructure allows for greater growth over time, though

Infrastructure

Public goods that a government invests in with tax money for increased trade or productivity

Technological progress

A driver of economic growth that allows for greater efficiency without increasing the number of inputs used; driven through:

• Research and innovation patents

• Innovation incentives

• Education and experience adoption

• Resource scarcity for better methods

Can be measured through growth not attributable to capital or labor

Scientific research

Research that generates new or improved production techniques, improved physical capital, and better goods and services

Innovation

Activity that leads to higher output, boosted GDP, and greater business profits

• Often requires research; this can be enabled by government-sanctioned monopolies