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ECN Ch 8.docx

3 Pages

Course Code
ECN 204
Christos Shiamptanis

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ECN Ch. 7 Production and growth Productivity: Its role and determinates  Productivity: The quantity of goods and services produced from each hour of a workers time  How productivity is determined  Physical Capital per worker: The stock of equipment and structures that are used to produce goods and services.  Human Capital: The knowledge and skills that a worker requires through education, experience and training.  Natural Resources: The inputs into production of goods and services that are provided by nature, such as land, rivers and mineral deposits. Consist of renewable and non renewable resources  Technological Knowledge: Societies understanding of the best ways to produce goods and services. Technological knowledge refers to societies understanding of how the world works. Human capital refers to the resources expended transmitting this knowledge to the labour force. Economic Growth and Public Policy What can government do to raise productivity and living standrads  The Importance of Saving and Investment - One way to raise future production is to invest more current resources in the production of capital. - Society faces the trade off, for society to invest more in capital it must consume less and save more of its current income. - Encouraging saving and investment is one way that a government can encourage growth, and in the long run raise the economy’s standard of living.  Diminishing returns and catch up effect -Diminishing returns: The property in whereby the benefit from an extra unit of an input declines as the quantity of the input increases. When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly. - The catch up effect: The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich.  Investment from abroad: - Foreign direct investment: A capital investment that is owned by and operated by a foreign entity. - Foreign portfolio investment: An investment that is financed with foreign money but operated by domestic residents is called foreign portfolio investment.  Education: One way in which government policy can enhance standard of living is to provide good schools to encourage population to take advantage of them. - education is a positive externality: The effect of one persons actions on the well being of a bystander. If you are educated then you can generate new ideas on how best to create goods and services - Brain Drain: problem fa
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