Chapter 25 Review Questions

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Chapter 25 Production and Growth

This chapter examines factors that contribute to long run economic growth. As you read the chapter,
Compare US economic growth and living standards with other countries. -The growth rate was not the highest, however the United states did actually have one of the highest standards of living compared to other countries.
Outline major factors that lead to growth (include definitions, description or example) and for each, list government policies that may encourage each one. -Saving & Investment-Increases the amount of capital a country has. -Investment From Abroad-A capital investment that is owned by a foreign entity. Can increase the flow of money into poor countries. -Education- A form of human capital, it creates positive externalities. Health and Nutrition- A healthy nation leads to much more productive workers.
You should also be able to:

-Define productivity. - The quantity of goods and services produced from each unit of labor input.

-discuss whether the availability of natural resources are a limit to growth
-These resources are not a limit to economic growth because if they were then they would be much more expensive, and also we find new ways to replace them.
-discuss the opportunity costs of investing in capital.

-discuss the role of physical capital in economic growth, the “catch-up” effect and diminishing returns
Diminishing returns- As the stock of capital rises the extra output produced from an additional unit of capital falls.
Catch up effect- The effect of initial conditions on subsequent growth. Easier to grow if you start out poor.
Physical capital- The stock of equipment and structures used to produce goods and services.
-know the difference between foreign direct investment and foreign portfolio investment, and their role in economic growth
Direct investment-Capital investment that is owned and operated by a foreign entity.
Foreign portfolio investment -An investment

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