ECON201 Chapter 10: Economic Growth

Vocabulary flashcards covering core concepts of economic growth, the aggregate production function, capital accumulation, technological change, and institutional drivers.

Production function

The methods by which inputs are transformed into output, determining the total production that is possible with a given set of ingredients.

Aggregate production function

An economic relationship, represented as $Y = f(L, H, K)$, that links total output (GDP) to labor, human capital, and physical capital.

Labor ($L$)

The sum of all hours worked across the whole economy, influenced by population size, demographics, labor participation, and average hours worked.

Human capital ($H$)

The accumulated knowledge and skills that make a worker more productive, acquired through education, practice, and training.

Physical capital ($K$)

The tools, machinery, and structures (including public infrastructure like roads and electricity networks) used as inputs in the production process.

Capital stock

The total quantity of physical capital available to be used in the production of goods and services.

Labor productivity

The quantity of goods and services that each person produces per hour of work.

Dependency ratio

The number of people too young (under 18) or too old ($65+$) to work per 100 working-age people.

Technological progress

New methods for combining existing resources to produce more valuable output, shifting the production function upward.

Constant returns to scale

A property where increasing all inputs by a certain proportion causes total output to rise by that exact same proportion.

Replication argument

The economic reasoning that doubling output can be achieved simply by replicating all current inputs and processes.

Law of diminishing returns

The principle that when other inputs are held constant, increasing one input will eventually yield smaller and smaller additions to total output.

Catch-up growth

The rapid economic growth experienced by a relatively poor country when it invests heavily in physical capital from a low initial capital stock.

Solow model

An economic model used to analyze long-term growth by examining the interaction of the production function, investment, capital accumulation, and depreciation.

Depreciation

The decline in physical capital value and function resulting from wear and tear, obsolescence, accidental damage, and aging.

Steady state

The condition where new investment in capital stock exactly matches depreciation, causing capital per worker and output growth from capital accumulation to halt.

Property rights

The legally enforced control over a tangible or intangible resource that incentivizes investment, work, and innovation.