Economics Chapter 22

why do economies grow?

Capital deepening -- increases in the stock of capital per worker
technological progress -- an increase in output without increasing imports
human capital -- the knowledge and skills acquired by a worker through education and experience and used to produce goods and services
real GDP per capita -- gross domestic product per person adjusted for changes in prices. It is the usual measure of living standards across time and between countries
growth rate -- the percentage rate of change of a variable
rule of 70 -- a rule of thumb that says the output will double in 70/x years where x is the percentage rate of growth
convergence -- the process by which poor countries "catch up" with richer countries in terms of real GDP per capita
saving -- total income minus consumption
growth accounting -- a method to determine the contribution to economic growth from increased capital, labor, and technological progress
labor productivity -- output produced per hour of work
creative destruction -- the process by which competition for monopoly profits lead to technological progress
new growth theory -- modern periods of growth that try to explain the origins of technological progress

Notes

Economic do not have a complete understanding of what leads to growth, they regard increases in capital per worker, technological progress, human capital, and governmental institutions as key factors.

There are vast differences in per capita GDP throughout the world. There is debate about whether poorer countries in the world are converging in per capita incomes to richer countries.

Economy's growth through two basic mechanisms:
capital deepening and technology all processes.

Capital deepening is an increase in capital per worker. Technological progress is an increase in output with no additional increases in inputs.

Ongoing technological progress will lead to sustained economic growth.

A variety of theories try to explain the origins of technological progress and determine how we can promote it.
They include
spending on research and development,
creative destruction,
the scale of the market,
induced inventions,
education, and
the accumulation of knowledge.

Governments can play a key role in designing institutions that promote economic growth.
Investments in human capital are a key component of economic growth.