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AUECO102 Lecture Notes - Lecture 3: Capital Accumulation, Foreign Direct Investment, Diminishing Returns

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School
University of Alberta
Department
Augustana Faculty - Economics
Course
AUECO102
Professor
Dr. Yasser Fahmy

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Document Summary

A country"s standard of living depends on its ability to produce goods and services. Within a country there are large changes in the standard of living over time. In canada over the past century, average income as measured by real gdp per person has grown by almost 2 percent per year. Productivity refers to the amount of goods and services produced for each hour of a worker"s time. A nation"s standard of living is determined by the productivity of its workers. Productivity of labor = output / labor unit. Living standards, as measured by real gdp per person, vary significantly among nations. The poorest countries have average levels of income that have not been in the developed world for many decades. Annual growth rates that seem small become large when compounded for many years. Compounding refers to the accumulation of a growth rate over a period of time.

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Related Questions

Article by Brandon Fuller.

A nation's GDP is determined by its labor force, its capital stock, and its technological knowledge. An increase in the amount of capital per worker increases a nation's GDP. An improvement in technology allows a nation to get more GDP out of its existing capital stock. Technology refers to the way an economy organizes its labor and capital to produce goods and services. If two nations have the same number of workers and capital but one nation uses better technology to get more out of its labor and capital, it will generate more GDP. The nation with better technology has higher productivity - it gets more output per hour of labor input.

A recent Hal Varian commentary in the New York Times focused on the role of technological knowledge in explaining the different productivity experiences of Europe and the United States. Compared to Europe, the United States experienced much stronger growth in output per labor hour over the past decade. Why? The evidence suggests that American firms integrate information technology more quickly than their European counterparts. Follow the link to find out more: Productivity.

This question is from the article below.

By Brandon Fuller.

A nation's GDP is determined by its labor force, its capital stock, and its technological knowledge. An increase in the amount of capital per worker increases a nation's GDP. An improvement in technology allows a nation to get more GDP out of its existing capital stock. Technology refers to the way an economy organizes its labor and capital to produce goods and services. If two nations have the same number of workers and capital but one nation uses better technology to get more out of its labor and capital, it will generate more GDP. The nation with better technology has higher productivity - it gets more output per hour of labor input.

A recent Hal Varian commentary in the New York Times focused on the role of technological knowledge in explaining the different productivity experiences of Europe and the United States. Compared to Europe, the United States experienced much stronger growth in output per labor hour over the past decade. Why? The evidence suggests that American firms integrate information technology more quickly than their European counterparts. Follow the link to findout more: Productivity.

Annual Growth Rates of Real GDP Per Capita

(in percents)

Ending
Year

1929

1933

-8.2

1939

0.2

1940

0.9

1945

3.7

10.3

1950

2.4

4.1

-1.8

1955

2.4

3.6

0.4

2.7

1960

2.2

2.9

0.6

1.7

0.8

1965

2.4

3.0

1.3

2.3

2.1

3.5

1970

2.3

2.9

1.5

2.3

2.2

2.9

2.3

1975

2.3

2.7

1.5

2.2

2.0

2.4

2.0

1.6

1980

2.3

2.7

1.7

2.2

2.1

2.5

2.2

2.1

2.6

1985

2.3

2.6

1.7

2.2

2.2

2.4

2.2

2.1

2.4

2.2

1990

2.3

2.6

1.8

2.2

2.2

2.4

2.2

2.2

2.4

2.2

2.3

1995

2.2

2.5

1.7

2.1

2.1

2.3

2.1

2.0

2.1

1.9

1.8

1.3

2001

2.3

2.5

1.9

2.2

2.2

2.3

2.2

2.2

2.3

2.2

2.2

2.1

2.8

1929

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

Starting Year

Source: Economic Report of the President, various years.


This table keeps changes in real GDP from being overstated by adjusting for

Select one:

a. productivity.

b. inflation.

c. standard of living.

d. population growth.

Question 2

Not yet answered

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Question text

Per Capita GDP
Luxembourg

$33,609
United States

$33,586
Switzerland

$27,126
Japan

$23,311
Iceland

$23,230

Economists use numbers such as those in the table as a measure of

Select one:

a. net exports.

b. total dollar value of all final goods and services.

c. national income.

d. standard of living.

Question 3

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Question text

Per Capita GDP
Luxembourg

$33,609
United States

$33,586
Switzerland

$27,126
Japan

$23,311
Iceland

$23,230

The numbers in this table were calculated by

Select one:

a. multiplying GDP by total population.

b. dividing GDP by total population.

c. adding the dollar value of all final goods and services produced in the nation.

d. subtracting net exports from GDP.

Question 4

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Question text

A key gauge of future U.S. economic activity declined 0.5% last month, as the Sept. 11 terrorist attacks in New York and Washington weakened an already troubled economy.

The Conference Board said Monday its index of leading economic indicators fell to 109.2 in September,...the largest one-month decline since January 1996.... The index indicates where the overall U.S. economy is headed in the next three to six months....

The economy had been struggling for several months before the Sept. 11 attacks. Many economists have said they believe that a recession is unavoidable with the new uncertainties raised by the disaster.

Source: “Leading Indicators Decline,” USAToday.com, October 22, 2001.

The passage discusses a business fluctuation influenced by

Select one:

a. external shock.

b. monetary factors.

c. innovation.

d. capital expenditures.

Question 5

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Question text

For all the recent talk of cutting taxes, Congress rarely cuts them when the economy is growing robustly, as it is now, and unemployment is low. The worry among economists is that the extra money in people’s pockets may make an already strong economy too strong, finally stoking inflation after a long period of relatively stable prices.


Source: The New York Times, July 14, 1999.

The passage describes rising inflation as a possible result of

Select one:

a. a booming economy.

b. rising unemployment.

c. tax cuts.

d. a prolonged period of stable prices.