Factors of growth and income distribution

Explain what economic growth is and which measure is typically used to quantify it. For a country, what difference does it make to grow by $2\ \%$ compared to $5\ \%$?

Explain the difference between economic growth and recession. The term "technical recession" is used when GDP falls for two consecutive quarters: what does that mean and how would it be noticeable in the news and around you?

Growing $1\ \%$ a year for $30$ years multiplies income by roughly $1,35$; growing $3\ \%$ a year multiplies it by $2,43$.

1. a) Interpret the difference: what does it mean for the living standard of grandchildren compared with grandparents in each case?
2. b) Explain why small differences in the growth rate matter so much in the long run (the compounding effect).

Name the factors that explain an economy's growth and classify these examples: building a motorway, training workers, inventing new management software, and having courts that enforce contracts.

Explain what labour productivity is (output per worker or per hour). One bakery produces $200$ loaves per hour per worker and another, $120$: which is more productive and what three reasons could explain the difference (machinery, training, organisation)?

A country increases its output by $4\ \%$ in a year, but its workers grow by only $1\ \%$ and its capital (machinery, infrastructure) by another $1\ \%$.

1. a) Where can the rest of the growth come from (technology, organisation, training)? What name does that "unexplained" part receive?
2. b) Reason why that source is the most valuable one for growing in a sustained way.

Distinguish between physical capital and human capital, and classify: a factory robot, a welding course, a delivery van and the accumulated experience of a surgeon. Which of the two types of capital does the person "carry with them"?

What are a country's institutions (laws, courts, registries, the stability of the rules) and why do they count as a factor of growth? Imagine two identical countries except that in one of them contracts are not enforced: what happens to investment?

One factory with $50$ workers produces $10.000$ parts a month; another, with $80$ workers, produces $14.000$ parts.

1. a) Calculate productivity per worker for each factory.
2. b) If the first produces more per worker thanks to better machinery, which factors of growth does the comparison illustrate? Relate it to physical capital and technology.

The figure shows the Lorenz curve of an imaginary country: on the horizontal axis, the cumulative percentage of population (from poorest to richest) and, on the vertical axis, the cumulative percentage of income received.

1. a) Which measure of inequality is provided by the gap between the curve and the diagonal? Explain your answer.
2. b) Interpret the marked point: what does it mean for the poorest $60\ \%$ of the population to receive $25\ \%$ of the income?

The income an economy generates is distributed among the factors: wages for labour, and profits, interest and rents for capital and property. Explain what the "functional distribution of income" is using the example of a cake shop that takes in $10.000\ \text{€}$ a month: what items come out of that revenue and who do they go to?

In country A, the richest $20\ \%$ receive $45\ \%$ of income and the poorest $20\ \%$ receive $5\ \%$; in country B, those percentages are $35\ \%$ and $10\ \%$.

1. a) Calculate for each country the ratio between what the richest $20\ \%$ receive and what the poorest $20\ \%$ receive.
2. b) Interpret the results: which country is more unequal and how does this relate to the shape of its Lorenz curve?