What is economic growth?
A sustained increase in a country's production and wealth over time.
What does gross domestic product (GDP) sum up?
Gross value added by resident units plus taxes on products minus subsidies.
How is real GDP measured?
At constant prices capturing quantity changes.
How is nominal GDP measured?
At current prices and can rise due to price increases.
What are factors of production?
All inputs necessary to produce goods or services and create value added.
What causes extensive growth in production?
Using larger quantities of factors of production.
How does investment affect capital stock?
It increases or renews capital stock through fixed capital purchases.
What types of capital are included in fixed capital purchases?
Material capital like machines and intangible capital like software, patents, and R&D.
What happens during diminishing returns when one factor increases?
Each additional unit produces a smaller output increase.
What does the Solow residual represent in production growth?
Growth unexplained by labour and capital quantity increases.
What does total factor productivity measure in production?
Efficiency of combining labour and capital.
What mainly explains intensive economic growth?
Productivity gains with the same labour and capital quantities.
What is innovation in economic terms?
The successful economic and commercial application of an invention.
Which three forms of innovation did Schumpeter identify?
Product, process, and organisational innovations.
Who identified product, process, and organisational innovations?
Joseph Aloïs Schumpeter.
What defines endogenous technical progress?
Technical progress created by the economic system through investments by agents like entrepreneurs and the state.
How does investment in R&D, human capital, physical capital, and infrastructure affect the economy?
It raises productivity, generates growth, and creates income for further investment and innovation.
What are institutions in economic interactions?
Relatively stable formal and informal rules establishing the interaction framework.
What legal powers do property rights grant a person?
To use an asset, obtain income from it, and transfer it.
What does a patent grant to the first innovating firm?
The right to exclude others from producing or using the innovation.
For how long does a patent generally last?
About 20 years.
How do secure institutions and property rights affect investment and innovation?
They encourage them by reducing risks and allowing innovators to receive returns.
What is creative destruction in innovation?
The process where new innovations create new jobs and obsolete older ones.
What must competition policy protect according to the rule?
Innovators through patents.
What must competition policy prevent regarding dominant firms?
Blocking further innovation through abuse of a dominant position.
What trend accompanied economic growth in developed countries since the 1980s?
Increased income inequality.
What does income inequality describe in terms of income distribution?
Unequal distribution of income before or after redistribution.
How can technical progress increase income inequality?
By creating monopoly rents, eliminating low-skilled jobs, and polarising employment.
What does sustainable growth ensure for future generations?
It ensures their ability to satisfy their needs is not compromised.
How does economic growth create ecological limits?
Through resource depletion, pollution, and climate change from fossil-fuel use and greenhouse gases.
What distinguishes renewable from non-renewable resources?
Renewable resources can regenerate; non-renewable cannot on a human timescale.
Which resources are examples of non-renewable resources?
Oil, lithium, and uranium.
What is the core idea of strong sustainability?
Destroyed natural capital cannot be fully replaced and must be conserved.
What do neoclassical economists assume about natural and physical capital?
Natural capital can be substituted by physical capital.
What do strong-sustainability economists reject regarding capital substitution?
They reject complete substitution of natural capital by physical capital.
How does resource scarcity affect prices and innovation?
Resource scarcity raises prices, encouraging substitutes and productivity improvements.
What is the rebound effect in ecological sustainability?
Efficiency gains lower use cost and stimulate demand, increasing total consumption or pollution.
Why is public intervention necessary when environmental externalities exist?
Because markets cannot efficiently guide agents, so intervention stimulates green innovation.
What does the average annual growth rate measure?
The average yearly pace of change of a variable over a period.
What was French economic growth in 2024?
1.2% increase in GDP between 2023 and 2024.
What is the labour factor in production?
Human activity contributing to producing goods and services.
What defines the capital factor in production?
Stock of durable equipment used to produce goods and services for over one year.
How is productivity calculated in terms of output and inputs?
Output divided by inputs: .
What is human capital?
The set of skills acquired by an individual enabling production.
What roles can public institutions play in the economy?
Regulate markets, ensure competition, stabilize the economy, and reduce inequality.
How long do innovation clusters take to impact the economy according to Schumpeter?
Approximately 20 to 30 years.
What does a radical innovation generate?
Incremental innovations that transform production and consumption.
What is the effect of incremental innovations on older activities?
They progressively replace older activities.
Which entrepreneurs are examples of capturing large monopoly rents from innovation?
Rockefeller, Bill Gates, Mark Zuckerberg, and Jeff Bezos.
Why have economists warned about the growth model since the 1970s?
Because it consumes resources needed by future generations.
How can innovations reduce material and energy use?
Through recycling, renewable electricity, insulation, recycled materials, lighter vehicles, and less fuel-intensive engines.
Answer 31 questions on Sources and Challenges of Economic Growth.
1. Which description best defines economic growth?
2. What does gross domestic product measure?
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