ECO 2013-Chapter 10: Economic Growth

What does the growth rate formula measure?

The percentage change in a variable from one year to the next

Formula for growth rate?

((New value – Old value) / Old value) ​×100

Formula for real GDP growth?

Real GDP growth=NGDP growth−Inflation rate

Formula for real GDP per capita growth?

RGDP per capita growth=RGDP growth−Population growth

What is compound growth?

Growth that builds on previous growth, causing increases to accelerate over time

What is the Rule of 70?

A shortcut to estimate how many years it takes for a variable to double at a given growth rate.

Rule of 70 formula?

Years to double = 70​/ growth rate

What is productivity?

Output produced per unit of labor input

Why is productivity important?

Sustained increases in living standards depend on productivity

What is physical capital?

Equipment and structures used to produce goods (e.g., machines, buildings)

What is human capital?

Worker knowledge, skills, and experience

What are natural resources?

Inputs like land, minerals, water, fossil fuels

What is technology in economics?

The ability to produce more output with the same inputs

How can governments encourage productivity through investment?

Promote saving and investment to fund new capital

What is foreign direct investment (FDI)?

When foreign firms build or purchase capital domestically

What is foreign portfolio investment?

Foreign investors buying domestic financial assets that fund new capital

How does education raise productivity?

It builds human capital, increasing worker skills

How does health and nutrition affect productivity?

Healthier workers are more productive

Why are property rights important for growth?

They encourage investment and entrepreneurship by ensuring individuals can keep returns

Why is political stability important?

It reduces risk and encourages investment, entrepreneurship, and innovation

How does free trade promote growth?

By encouraging specialization, idea exchange, and larger markets

Empirically, what happens to countries that promote free trade?

They grow faster than countries with restricted markets