Mankiw Principles of Economics Ch. 25

guide

productivity

quantity of goods and services produced from each unit of labor input (Y/L)

physical capital (K)

stock of equipment and structures that are used to produce goods and services

human capital (H)

knowledge and skills that workers acquire through education, training, and experience

natural resources (N)

inputs into production of goods and services that are provided by nature such as land, rivers, and mineral deposits

technological knowledge (A)

society's understanding of the best ways to produce goods and services

diminishing returns

property whereby benefit from an extra unit of an input declines as quantity of input increases

catch-up effect

property whereby countries that start off poor tend to grow more rapidly than countries that start off rich

production function

Y \= A x F(L, K, H, N)

constant returns to scale

changing all inputs by same percentage causes output to change by same percentage

diminishing returns to capital

as physical capital increases, extra output from an additional unit of K falls

foreign direct investment

capital investments (i.e. factory) that is owned and operated by foreign entity

foreign portfolio investment

capital investment financed with foreign money but operated by domestic residents

World Bank

tries to encourage flow of capital from rich countries to poor countries

brain drain

emigration of highly educated workers

property rights

ability of people to exercise authority over the resources they own

ways to increase productivity

increase education, health and nutrition, and/or property rights and political stability

inward-oriented policies

aim to raise living standards by avoiding interaction with other countries (i.e. tariffs, limits on investment from abroad)

outward-oriented policies

promote integration with the world economy (i.e. elimination of restrictions on trade or foreign investment)

how population growth affects living standards

1. stretches natural resources
2. dilutes capital stock
3. promotes technological progress