Outline some of the benefits and costs to society when it experiences growth.
answer
Benefits: Higher income, higher employment, and a higher standard of living. Costs: Pollution, resource exhaustion, and destruction of natural habitat.
question
Assume that per capita income is growing at different rates in the following countries: Nepal, 1.1 percent; Kenya, 1.7 percent; Singapore, 7.2 percent; Egypt, 3.9 percent. How long will it take for each country to double its income per person?
answer
Nepal: 65.5 years.
Kenya: 42.4 years.
Singapore: 10 years.
Egypt: 18.5 years.
question
Assume that per capita income is growing at different rates in the following countries: Nepal, 1.3 percent; Kenya, 1.9 percent; Singapore, 7.5 percent; Egypt, 3.6 percent. How long will it take for each country to double its income per person?
answer
Nepal: 55.4 years.
Kenya: 37.9 years.
Singapore: 9.6 years.
Egypt: 20 years.
question
What roles do specialization and division of labor play in economists' support of free trade?
answer
Through free trade, countries specialize in the goods for which they have a comparative advantage and trade for those in which they do not. Specialization allows a country to divide labor among the various production segments, which results in higher productivity and greater economic growth for the involved countries.
question
Who most likely worked longer to buy a dozen eggs: a person living in 2013 or a person living in 1910? Why?
answer
A person living in 1910 because real per capita income has increased since 1910.
question
Calculate real growth per capita in the following countries:
answer
a. Democratic Republic of Congo: population growth = 3.0 percent; real output growth = ā1.8 percent.
-4.8 %.
b. Estonia: population growth = ā0.4 percent; real output growth = 4.2 percent.
4.6 %.
c. India: population growth = 2.0 percent; real output growth = 6 percent.
4%.
d. United States: population growth = 0.5 percent; real output growth = 2.5 percent.
2 %.
question
Calculate real growth per capita in the following countries:
answer
a. Democratic Republic of Congo: population growth = 2.1 percent; real output growth = - 1.1 percent.
-3.2 %.
b. Estonia: population growth = - 0.3 percent; real output growth = 4.2 percent.
4.5 %.
c. India: population growth = 1.6 percent; real output growth = 5.3 percent.
3.7%.
d. United States: population growth = 0.4 percent; real output growth = 2.4 percent.
2%.
question
In what ways do informal property rights limit growth?
answer
Informal property rights limit growth by limiting the size of companies (they must stay small to remain below the government's radar) and by limiting access to business and individual loans when people don't have legal collateral.
question
How can an increase in the U.S. saving rate lead to higher living standards?
answer
Increasing the saving rate increases investment, which increases technological growth and total output, both of which raise people's income, leading to a higher standard of living.
question
Name three types of capital.
answer
Human capital, physical capital, social capital
question
How does growth through technology differ from growth through the accumulation of physical capital?
answer
Technology can change the types of goods people buy in an economy by introducing new types of products and technology makes the existing capital more efficient; accumulation of physical capital does not make such changes.
question
What are spillover effects and how do they affect growth?
answer
Spillover effects are positive externalities resulting from a technological change not taken into account by the decision maker. The positive spillover effects result from the common knowledge aspect of technology because the idea behind the technology can often be used by others without payment to the developer. This is the key to growth.
question
What are network externalities and how do they lead to growth?
answer
Network externalities are externalities in which the use of a good by one individual makes that technology more valuable to other people. Network externalities can make switching to a superior technology expensive or nearly impossible.
question
In the early 20th century worker productivity in the Horndal iron works plant in Sweden increased by 2 percent per year over a 15-year period even though the firm did not invest in new capital. What might be the cause for the increase in productivity?
answer
Productivity could have increased as a result of learning by doing or because of improved embedded technology.
question
Modern macroeconomics developed as an attempt to explain:
answer
short-run business cycles.
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Say's Law allows growth theorists to:
answer
ignore aggregate demand and focus only on aggregate supply.
question
Robert Lucas reflects the view of many economists when he argues that the most effective way to reduce world poverty is to:
answer
increase long-run growth.
question
The effect of specialization and the division of labor is to make us:
answer
more productive and more dependent on others.
question
The Rule of 72 implies that a country with a growth rate of 8 percent will double its income in about:
answer
9 years
question
The Rule of 72 implies that a country will double its income in about 18 years if its growth rate is:
answer
4 percent
question
Suppose Thailand grows at a rate of 8 percent, Malaysia grows at a rate of 6 percent, and both countries have the same initial per capita output level. Using the rule of 72, it follows that in 36 years Thailand's per capita output will be:
answer
100 percent larger than Malaysia's per capita output.
question
Which of the following is not a type of capital that will contribute to economic growth?
answer
social capital
question
Economic growth causes:
answer
the production possibility curve to shift out.
question
The growth produced by markets:
answer
makes the average person better off but may worsen the distribution of income.
question
The effect of economic growth generally has been to make:
answer
all income levels richer.
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If a country's population is 10 million and its GDP is $113 billion, its per capita output is:
answer
$11,300
question
If per capita output falls by 2 percent and population grows by 3 percent, output:
answer
grows by 1 percent.
question
Financial markets are a key institution of growth because:
answer
they move funds from those who save to those who invest.
question
Suppose that a business discovers an opportunity that requires funds to exploit. What effect would this have in the market for loanable funds?
answer
It will increase interest rates and the quantity of funds lent will rise.
question
In the early 2000s, analysts feared that low academic achievement in math in the United States may reduce U.S. economic growth by as much as half a percentage point a year. In terms of factors leading to growth, the low math scores indicate that the U.S. may be at a disadvantage in terms of:
answer
human capital.
question
Some economists argue that well-functioning capital markets that allow funds to move from those who have but do not need funds to those who need but do not have funds, are essential for rapid economic growth. Well-functioning capital markets are an example of:
answer
growth-compatible institutions.
question
According to economist Hernando DeSoto, the lack of formal property rights in many poor countries limits economic growth because informal property rights:
answer
limit the amount that businesses and households can borrow.
question
Over the last three decades, the Chinese government has adopted a series of market-oriented reforms that have shifted control of many parts of the Chinese economy from government officials to private individuals. These reforms have most likely stimulated China's growth for which of the following reasons?
answer
They have provided individuals with a greater incentive to be efficient.
question
Growth compatible institutions:
answer
have incentives built into them that lead people to put forth effort.
question
A resource the United States lacked in the 20th century and had to import was:
answer
labor
question
One reason why the Soviet Union grew slowly in the 20th century compared to the United States and Western Europe was that it:
answer
did not provide incentives for individuals to produce what consumers valued.
question
Factory buildings are an example of:
answer
physical capital
question
According to estimates presented in the textbook, which of the following factors made the smallest contribution to the growth of the United States between 1928 and 1997?
answer
human capital
question
According to estimates in the text, which of the following factors made the most important contribution to the growth of the United States from 1928 to today?
answer
Technology
question
The law of diminishing marginal productivity applies whenever:
answer
only one input is increased
question
The law of diminishing marginal productivity implies that opportunity cost:
answer
increases as one input is increased to produce successive units of output.
question
According to the Classical growth model, the most important source of economic growth was:
answer
capital accumulation.
question
According to the Classical growth model, an economy that increases its saving will grow:
answer
quickly since the increase in saving will permit greater investment
question
Which of the following is least likely to increase potential output?
answer
Increased aggregate demand
question
According to the Classical growth model, population growth:
answer
eventually reduces output per worker.
question
In the Classical growth model, the economy attains a stationary state because:
answer
additional population would cause wages to fall below subsistence and would reduce population.
question
The iron law of wages was the belief that:
answer
population increases as long as wages were above the subsistence level
question
The economist who stressed the importance of the entrepreneur in economic growth was:
answer
Joseph Schumpeter.
question
How do investment in technology and investment in capital differ?
answer
They have different effects on output because of the positive externalities associated with investments in technology.
question
Positive externalities of technological change result from:
answer
the common knowledge embodied in many technologies.
question
Patents:
answer
reduce the positive externalities associated with new technologies.
question
If the positive externalities associated with learning by doing are sufficiently great, production will be characterized by:
answer
increasing returns to scale.
question
According to new growth theory, per capita growth is:
answer
unlimited if production is characterized by increasing returns to scale.
question
Network externalities:
answer
can explain why the economy fails to adopt the most efficient technologies.
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