GDP, Productivity, and Standard of Living

Vocabulary flashcards summarizing core economic concepts from the lecture, including GDP, its limitations, productivity factors, and illustrative examples.

Gross Domestic Product (GDP)

The total market value of all final goods and services produced within a country during a specific time period.

GDP per Capita

GDP divided by the population, used to approximate the average standard of living in a country.

Standard of Living

The level of material well-being and comfort enjoyed by individuals or societies, often measured with GDP per capita.

Productivity

The amount of goods and services produced per unit of input (e.g., per worker or per hour); the key driver of living standards.

Physical Capital

Human-made tools, machinery, buildings, and equipment that aid in the production of goods and services.

Human Capital

The knowledge, skills, and experience that workers acquire through education, training, and practice.

Natural Resources

Inputs provided by nature—such as land, minerals, water, fertile soil, and energy sources—used in production.

Technological Knowledge

Society’s understanding of the best methods to produce goods and services; know-how that boosts productivity.

Determinants of Productivity

The four main factors—physical capital, human capital, natural resources, and technological knowledge—that influence output per worker.

Misleading GDP Comparisons

Ranking nations by total GDP alone can distort prosperity because it ignores population size; small countries may look poor despite high income per person.

Luxembourg (GDP per Capita)

One of the wealthiest countries by GDP per capita, producing about $116,921 of goods and services per person in 2020.

Burundi (GDP per Capita)

Among the poorest countries by GDP per capita, producing roughly $256 of goods and services per person in 2020.

Castaway Example

Tom Hanks’s stranded-island scenario illustrating that standard of living depends on the goods and services one can produce, not on money.

Assembly Line

Manufacturing process popularized by Henry Ford that divides production into repetitive tasks, greatly increasing efficiency.

Gold Reserves (Non-Determinant)

A nation’s stockpile of gold; unlike capital or knowledge, it does not directly determine worker productivity.