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Unformatted text preview: Econ. 102- Test #2 Review-Ch.6-9 Chapter 6- P roductivity and Growth I ncrease in Productivity of Labor- Skills and training workers, called human capital The quantity and quality of physical capital-machines, equipment, and buildings The availability of land and other natural resources The sophistication of the technologies applied in production The effectiveness of management and entrepreneurship The broad social and legal environment a.k.a Rules of the Game Economic Growth by Shifts Outward in the PPF- The PPF is bowed outward b/c resources arent perfectly adaptable to the production of both goods; some resources are specialized! Productivity- The ratio of a specific measure of output, such as real GDP, to a specific measure of input; in this case productivity measures real GDP per hour of labor. Labor Productivity- Output per unit of labor; measured as real GDP divided by the hours of labor employed to produce that output. Human Capital- the accumulated knowledge, skill and experience of labor. Physical Capital- includes machines, buildings, roads, airports, communication networks, and other human creations used to produce goods and services. Examples- poorer countries labor is cheap and capital is precious, so produces substitute labor for capital. Richer countries labor is costly (compared with capital), the use of the required labor is always done, nor more. As economy accumulates more capital per worker, labor productivity increases and the standard of living grow. Per Worker Production Function- the relationship between the amount of capital per worker in the economy and the average output per worker. The curve slopes upward from left to right b/c and increase in capital per worker helps each worker produce more output. Capital Deepening- an increase in the amount of capital per worker; one source of rising labor productivity. This contributes to labor productivity and economic growth. The diminishing slope of this curve reflects the law of diminishing marginal returns from capital, which says that beyond some level of capital per worker, increases in capital add less and less to output per worker. Technological Change- usually improves the quality of capital and represents another source of increased productivity. As a result of a technological breakthrough, more is produced at each level of capital per worker. Changes in Capital improve worker productivity- An increase in the quantity of capital per worker, as reflected by a movement along the per-worker production function An improvement in the quality of capital per worker, as reflected by technological change that rotates the curve upward....
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This note was uploaded on 10/20/2010 for the course ECON 101 taught by Professor Ohler during the Fall '08 term at Washington State University .
- Fall '08