Introduction to Economics 2 Dersi 8. Ünite Sorularla Öğrenelim

What is ''economic growth''?

Economic growth is the percentage increase in the gross domestic product of nation from a period to another period of time.

In order to compute the economic growth for a country, what do we need to have firstly?

In order to compute the economic growth for a country, firstly we need to have nominal GDP and real GDP values for series of years for that country.

What are ''factors of production''?

Factors of production are the inputs used in the production process. They are the physical capital (K), labor (L), natural resources (raw materials, land, energy, etc.) and the entrepreneurship.

What is ''the production function''?

The production function is an expression that relates the total output produced to the quantities of inputs used.

What is ''the marginal product of capital''?

The marginal product of capital is the change in output produced that results in one unit increase (change) in the capital stock

What is the marginal product of labor?

The marginal product of labor is the increase (change) in the output produced
that results in one-unit increase (change) in labor input.

What are ''supply shocks''?

Supply shocks are the shocks that cause the change of an economy’s production
function.

What is the function of ''the rule of 70''?

The rule of 70 allows us to easily calculate how much it takes for a variable to double itself. 

What are the main sources of economic growth?

The main sources of economic growth are the productivity growth, capital input growth, and labor input growth.

What kind of The Harrod–Domar growth model ?

The Harrod–Domar growth model is a very simple model to present the determinants of economic growth. The model relates an economy’s growth rate to its capital stock and it emphasizes how positive changes in investment spending causes an increase in an economy’s productive capacity. 

What are ''The Assumptions of the Solow
Growth Model''?

The Assumptions of the Solow
Growth Model

• The economy consists of one sector
producing one good which is used for
either investment or consumption,
• It is closed economy without government,
• Since the economy is a closed one, then the
saving is equal to investment,
• The economy is always producing its
potential which is the full employment
level of output,
• In the model, the rate of technological
growth, population growth and the
depreciation rate of capital are all
determined exogenously

What are ''Steady States in Solow Growth Model'' ?

1.Steady states  investment,

2.Steady states consumption,

3.Steady-state saving.

What does Golden Rule capital labor ratio refer to ?

Golden Rule capital labor ratio refers to the level of the capital labor ratio that
maximizes the consumption per worker in the steady state.

What does the Solow growth model imply?

The Solow growth model implies that the rate of productivity improvement is the dominant factor determining how quickly living standards rise and an increase
in the saving rate has no impact on the long-run rate of economic growth.

What kind of government policies are necessary to affect a nation’s long-run growth and development progress?

1.Policies for Saving

2.Policies to Raise the Rate of
Productivity Growth

There is a need for the government policies to improve the saving rates. What does this theory suggest?

The theory suggests that if the private market is efficiently working, then the
government should not try to change the saving rate by changing the policies since the saving rate determined by the market represents the tradeoff between the present and future consumption.

There is a need for the government policies to raise the rate of
productivity growth.What does this theory suggest?

Studies suggest that there is a strong connection between productivity and human capital formation. The government can encourage human capital formation through educational policies, worker training and relocation programs,
and health programs.

What is the difference between '' Economic development and Economic growth''?

Economic development reflects social and economic progress and requires
economic growth. Economic growth is a vital and necessary condition for development, but it is not a sufficient condition as it cannot guarantee development.

In general, economic development is improvements in the standard of living through the creation of jobs, the support of innovation and new ideas, the creation of higher wealth, and the creation of an overall better quality of life.

What is the most known development indicator?

The most known development indicator is the Human Development Index (HDI)

How many features does HDI have?

The HDI has two main features.

The first feature of the index is the scale it uses. It uses a scale to rank the nations in terms of development.

Secondly, it develops an index based on three equally weighted components:
(i) Longevity, measured by life expectancy at birth, (ii) Knowledge, measured by adult literacy and number of years children are enrolled at school, and (iii) Standard of living, measured by real GDP per capita.

What are the Weaknesses of the Use of HDI ?

1. The HDI index does not distinguish
between different rates of development
within a country such as between urban
and traditional rural communities.
2. Giving equal weight to the three main
components is rather arbitrary.
3. Development is largely about freedom, but
the index does not directly measure this.
4. It uses GDP per capita, but there is no
indication of the distribution of income in
the country.
5. The HDI excludes many aspects of
economic and social life that could be
regarded as contributing to or constraining
development, such as crime, corruption,
poverty, deprivation, and negative
externalities.