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Chapter 4

Chapter 4 readings notes

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University of Toronto St. George

4.1 Gross national product per capita is used as summary index of relative economic well being of people in different countries gnp most commonly used measure of overall level of economic activity gdp measures total value for final use of output produced by an economy principle of diminishing marginal productivity states that if increasing amounts of a variable factor (labor) are applied to fixed amounts of other factors (capital, land, materials), the extra or marginal product of the variable factor declines beyond a certain number low levels of labour productivity can be explained by absence or lack of complementary factor inputs like physical capital or experienced management to raise productivity domestic savings and foreign finance must be mobilized to generate new investment in physical capital goods and build up the stock of human capital through investment in education and training institutional changes are necessary to maximize this potential of mew physical plus human invesmtnet reform of land tenure, coporate tax, banking strcture etc. these and other non economic inputs into the social production function have to be taken into account if strategies to raise productivity are to succeed also have to take into account the impact of worker and management attitude toward self improvement low levels of living and low productivity are self-reinforcing social and economic phenomena in poor countries and are the principal manifestations of and contributors to their underdevelopment 4.2 living standards in all countries tend to rise over time comparative position of poor countries development gap affects the growth of per capita income that poor countries must achieve either to prevent a deterioration of present comparative position or relative differences will narrow as long as the per capita income growth rate of developing countries is more than that of developed countries this excess of growth is pre condition for absolute differences to narrow and short run: narrowing of relative differences related to widering absolute www.notesolution.com
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