Production and Growth - Chapter 12 Notes

Vocabulary terms and key concepts regarding the determinants of productivity, the production function, and public policies affecting economic growth.

Productivity ($Y/L$)

The quantity of goods and services produced from each unit of labor input.

Physical Capital ($K$)

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

Human Capital ($H$)

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

Natural Resources ($N$)

Inputs into the 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.

Production Function

An equation showing the relationship between output and inputs, represented as $Y = A imes F(L, K, H, N)$, where $F()$ is a function showing how inputs are combined.

Constant Returns to Scale

A property whereby changing all inputs by the same percentage causes output to change by that same percentage, such as $2Y = A imes F(2L, 2K, 2H, 2N)$.

Diminishing Returns

The property whereby the extra output from an additional unit of capital falls as the stock of capital rises.

Catch-up Effect

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

Foreign Direct Investment ($FDI$)

A capital investment that is owned and operated by a foreign entity.

Foreign Portfolio Investment

An investment that is financed with foreign money but operated by domestic residents.

Brain Drain

The problem in poor countries where the most highly educated workers emigrate to rich countries, reducing the human capital stock in the home country.

Inward-oriented policies

Policies that aim to raise living standards by avoiding interaction with the rest of the world, such as through tariffs or limits on investment from abroad.

Outward-oriented policies

Policies that promote integration with the world economy, such as the elimination of restrictions on trade or foreign investment.

Robert Fogel

A Nobel winner who estimated that $30\%$ of Great Britain's growth between 1790 and 1980 was due to improved nutrition.

Property Rights

The ability of people to exercise authority over the resources they own; a prerequisite for the price system to work.

Thomas Robert Malthus

An thinker who argued that population growth would strain society's ability to provide for itself, dooming mankind to live in poverty.

Michael Kremer

An economist who suggested that world population growth is an engine for technological progress because it provides more scientists and inventors.

Public Good

A category of goods, like technological knowledge or ideas, that can be shared freely to increase the productivity of many people simultaneously.

Ratepayer Protection Pledge

An agreement where seven major tech companies pledged to supply their own power for AI data centers and pay for grid infrastructure upgrades.