Long-Run Economic Growth: Drivers and Policy Free Online FlashCards

What is long-run economic growth?

Long-run economic growth is a sustained increase in an economy’s ability to produce goods and services. It is commonly measured by real GDP growth or real GDP per capita growth.

How long does output take to double at 2% annual growth?

Approximately 35 years, because doubling time ≈ 70 ÷ 2.

Why does long-run growth shift LRAS rightward?

Long-run growth shifts LRAS to the right because the economy can produce more at full employment. The shift reflects greater resources, technology, productivity, or institutional efficiency.

What do the variables in Y = A F(K, L, H) represent?

A is technology or total factor productivity; K is physical capital; L is labor; H is human capital.

A factory makes 1,200 units in 500 hours. What is its labor productivity?

2.4 units per hour. Labor productivity = 1,200 ÷ 500.

How is the change in physical capital calculated?

Investment increases the capital stock, while depreciation reduces it: ΔK = I − δK.

What is the long-run effect of a higher saving rate?

A higher saving rate can raise the steady-state level of output per worker and speed the transition to it. Because of diminishing returns, it does not by itself sustain permanent growth in output per worker.

What is human capital?

Human capital is the stock of knowledge, skills, health, training, and experience embodied in people. It raises productivity and complements physical capital and innovation.

How does technological progress increase output?

Technological progress allows an economy to produce more with the same quantities of labor and capital. It includes product, process, organizational innovation, and diffusion.

Which institutions promote long-run economic growth?

Secure property rights, enforceable contracts, reliable courts, competitive markets, accountable government, and stable finance encourage investment, innovation, and technology adoption.

Output grows 3%; capital 4%; labor 1%; capital share 0.4. What is TFP growth?

0.8 percentage points. Measured input growth is 0.4(4%) + 0.6(1%) = 2.2%; the residual is 3% − 2.2% = 0.8%.

How can international trade support economic growth?

Trade can expand markets, increase specialization and competition, and provide access to technology and intermediate goods. Its gains may require adjustment support for affected workers and regions.