ch8tests - Growth is an increase in the amount of goods and...

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Growth is an increase in the amount of goods and services an economy can produce when both labor and capital are fully employed. Growth increases potential output and shifts the production possibility curve out, allowing an economy to produce more goods. Per capita growth means producing more goods and services per person. It can be calculated by subtracting the percentage change in the population from the percentage change in output. Five sources of growth are (1) growth-compatible institutions, (2) capital accumulation, (3) available resources, (4) technological development, and (5) entrepreneurship. The loanable funds market translates savings into investment that is necessary for growth. The interest rate equilibrates saving and investment. The production function shows the relationship between the quantity of labor, capital, and land used in production and the quantity of output resulting from production. The law of diminishing marginal productivity states that increasing one input, keeping all others constant, will lead to smaller and smaller gains in output. Returns to scale describes what happens to output when all inputs increase proportionately. The convergence hypothesis is that per capita income in countries with similar institutional structures will converge. Convergence has not taken place because of the lack of factor mobility, differing
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This note was uploaded on 04/24/2010 for the course ECON 12123 taught by Professor Donald during the Spring '10 term at Johnson County Community College.

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ch8tests - Growth is an increase in the amount of goods and...

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