econ 2

• Economic growth around the world varies widely from country to country, as do the growth rates.
• Productivity is the quantity of goods and services produced from each unit of labor input.
• Productivity is a key determinant of living standards and an economy’s income is the economy’s output.
• Physical capital is the stock of equipment and structures used to produce goods and services.
• Human capital is the knowledge and skills that workers acquire through education, training, and experience.
• Natural resources are inputs into the production of goods and services provided by nature, such as land, rivers, and mineral deposits.
• Technological knowledge is society’s understanding of the best ways to produce goods and services.
• Population growth and standard of living growth are not sustainable.
• Natural resources will eventually limit how much the world’s economies can grow, but technological progress often yields ways to avoid these limits.
• Improved use of natural resources and recycling can help conserve these resources.
• Saving and investment raise future productivity by investing more current resources in the production of capital.
• Trade-offs occur when savings are used to make consumption goods instead of more resources to make capital goods.
• Higher savings rates lead to higher levels of productivity and income in the long run.
• Diminishing returns occur when the benefit from an extra unit of an input declines as the quantity of the input increases.
• The production function curve becomes flatter as the amount of capital increases because of diminishing returns to capital.
• High population growth can reduce GDP per worker and promote technological progress.
• Education, represented by investment in human capital, is an investment that conveys a positive externality and reduces the opportunity cost of wages forgone.
• A vicious circle in poor countries is that populations are poor because they are not healthy and are not healthy because they are poor.
• Property rights and political stability, represented by courts that enforce property rights and promote political stability, are crucial for economic growth.
• Research and development, represented by public goods like farming methods and aerospace research, are knowledge investments that can promote technological progress.
• When the economy has a high level of capital, an extra unit of capital leads to a small increase in output.
• Health and nutrition, represented by healthier workers, can increase productivity and raise living standards.
• When the economy has a low level of capital, an extra unit of capital leads to a large increase in output.
• Free trade, represented by outward-oriented policies, can improve economic well-being.
• Investment from abroad, represented by foreign direct investment and foreign portfolio investment, is another way for a country to invest in new capital.
• Ductivity or income is represented by the figure Output per Worker, which illustrates the production function.
• Population growth, represented by a large population, can increase the size of the labor force and more consumers, but it can also strain natural resources and dilute the capital stock.
• Diminishing returns can be offset by a higher savings rate in the long run.