Key Terms

aggregate production function: the process whereby an economy as a whole turns economic inputs such as human capital, physical capital, and technology into output measured as GDP per capita

capital deepening: an increase by society in the average level of physical and/or human capital per person

compound growth rate: the rate of growth when multiplied by a base that includes past GDP growth

contractual rights: the rights of individuals to enter into agreements with others regarding the use of their property providing recourse through the legal system in the event of noncompliance

convergence: pattern in which economies with low per capita incomes grow faster than economies with high per capita incomes

human capital: the accumulated skills and education of workers

Industrial Revolution: the widespread use of power-driven machinery and the economic and social changes that occurred in the first half of the 1800s

infrastructure: a component of physical capital such as roads and rail systems

innovation: putting advances in knowledge to use in a new product or service

invention: advances in knowledge

labor productivity: the value of what is produced per worker, or per hour worked (sometimes called worker productivity)

modern economic growth: the period of rapid economic growth from 1870 onward

physical capital: the plant and equipment that firms use in production; this includes infrastructure

production function: the process whereby a firm turns economic inputs like labor, machinery, and raw materials into outputs like goods and services that consumers use

rule of law: the process of enacting laws that protect individual and entity rights to use their property as they see fit. Laws must be clear, public, fair, and enforced, and applicable to all members of society

special economic zone (SEZ): area of a country, usually with access to a port where, among other benefits, the government does not tax trade

technological change: a combination of invention—advances in knowledge—and innovation

technology: all the ways in which existing inputs produce more or higher quality, as well as different and altogether new products

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