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| Question | Answer |
| What is Economic Growth | The sustained expansion of the production possibilities |
| Economic Growth Rate | The annual percentage change of Real GDP |
| Economic Growth Rate formula | Growth Rate of Real GDP = Real GDP in current year - Real GDP in previous year/ Real GDP in previous year x 100 |
| What does the Growth Rate show us about the economy | It shows us that the economy is growing |
| The standard of living depends on what | It depends on the Real GDP per person |
| Formula for Real GDP per person | Real GDP/ Population |
| How much does Real GDP Growth contribute to the Standard of living | The standard of living depends on the growth rate of real GDP per person |
| The Standard of living rises when | The Growth rate is growing and the Real GDP per person is rising |
| What happens when the population grows quicker than the Real GDP | When it rises quicker the GDP per person will go down and the standard of living will fall because there is more people |
| Growth Rate of Real GDP per Person Formula | Growth Rate of Real GDP per person= Growth Rate of real GDP (%) - Growth Rate of Population |
| Standard of living can only grow when | When the Real GDP rises quicker than the population |
| The Magic of Sustained Growth | Sustained growth of Real GDP can transform a poor society to a wealthy one. The reason being that economic growth is like compound interest. (It grows bigger the longer you have it and it increases in small amounts) |
| Rule of 70 | The Rule of 70 is the number of years it takes for the level of any variable to double. The bigger the percentage the quicker it doubles |
| Formula for Rule of 70 | 70 / % of Variable |
| What increases the Standard of Living | Real GDP and Labor Productivity |
| Labor Productivity | Is the quantity of Real GDP produced by one hour of labor |
| Formula for Labor Productivity | Labor Productivity = Real GDP / Aggregate Hours |
| What happens when Labor Productivity increaes | When it increases the Real GDP per person increases which in turn increases the standard of living |
| The Growth of Labor Productivity depends on what two things | 1. Saving and Investment Capital 2. Expansion of Human capital and discovery new technologies |
| Saving and Investment on Physical Capital | You give producers better tools and resources to boost production and produce more per hour. They are affected by the law of diminishing returns |
| Law of Diminishing Returns | If the quantity of capital is small, an increase in capital brings a large increase in production but if the quantity of capital is large an increase in capital brings a small increase in production |
| What doesn't get affected by the law of diminishing returns | The Expansion of Human and discovery of new technologies is not affected by this law. |
| What are three ways to expand Human Capital | 1. Education and Training 2. Job Experience 3. Health and Diet |
| Education (Human Capital) | Education is good because you have a well educated population that can learn math and other subjects and have created professionals and specialists that contribute to labor productivity and advancement of technology |
| Job Experience (Human Capital) | Job Experience helps when you start finding a rythmn and you learn how to do things you can make things quicker increasing production |
| Health and Diet (Human Capital) | Health and diet help because well nourished and fit employees can stay longer and work harder producing more and increasing productivity curve |
| Discovery of New Technologies | New tech can help productivity and help make things efficiently and quickly |
| What has made a bigger contribution? Tech or Human and Physical Capital | Tech has provided a bigger contribution |
| What does tech have to do to reap the benefits | Capital has to increase for it to reap the benefits |
| What are the two reasons that Real GDP increases | 1. Quantity of Labor Growth 2. Labor Productivity Growth |
| What are factors of Labor Growth | Some factors include Population growth, Labor Force Participation, and Average hours per worker |
| Factors for Labor Productivity Growth | Physical Capital Growth, Human Capital Growth, Technological Advances |
| Classical Growth Theory | This theory says that the clash between an exploding population and limited resources will eventually bring economic growth to an end. (Things will be good till they become crap) |
| What is the Malthusian Theory | The Malthusian Theory is the same as the Classical Growth Theory and it believes that the population explosion will lower Real GDP per head and lower the standard of living |
| New Growth Theory | This theory predicts that our unlimited wants will lead us to ever greater productivity and perpetual economic growth (never ending growth) |
| What are the three facts of market economies that are emphasized in New Growth Theory | 1. Human Capital expands because of choices 2. Discoveries result from choices 3. Discoveries bring profit and competition destroys profit |
| Human Capital (New Growth Theory) | In Human Capital people decide how long and how hard they study and how much on the job training they receive. All these factors govern the speed that human capital expands. |
| Discoveries and Choices (New Growth Theory) | Discoveries depend on how many people are looking for new technologies and how intensively there looking for them. |
| Discovery brings Profit (New Growth Theory) | The profits of a new discovery are huge |
| Perpetual Motion | Growth is driven by the insatiable wants that lead us yo pursue profit and innovation |
| Is perpetual motion a diagram. T or F | It is a diagram. T |
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