# Macro-Econ Ch. 10

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question
Outline some of the benefits and costs to society when it experiences growth.
Benefits: Higher income, higher employment, and a higher standard of living. Costs: Pollution, resource exhaustion, and destruction of natural habitat.
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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?
Nepal: 65.5 years. Kenya: 42.4 years. Singapore: 10 years. Egypt: 18.5 years.
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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?
Nepal: 55.4 years. Kenya: 37.9 years. Singapore: 9.6 years. Egypt: 20 years.
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What roles do specialization and division of labor play in economists' support of free trade?
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.
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Who most likely worked longer to buy a dozen eggs: a person living in 2013 or a person living in 1910? Why?
A person living in 1910 because real per capita income has increased since 1910.
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Calculate real growth per capita in the following countries:
a. Democratic Republic of Congo: population growth = 3.0 percent; real output growth = ā1.8 percent. -4.8 %. b. Estonia: population growth = ā0.4 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 %.
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Calculate real growth per capita in the following countries:
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%.
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In what ways do informal property rights limit growth?
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.
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How can an increase in the U.S. saving rate lead to higher living standards?
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.
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Name three types of capital.
Human capital, physical capital, social capital
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How does growth through technology differ from growth through the accumulation of physical capital?
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.
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What are spillover effects and how do they affect growth?
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.
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What are network externalities and how do they lead to growth?
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.
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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?
Productivity could have increased as a result of learning by doing or because of improved embedded technology.
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Modern macroeconomics developed as an attempt to explain:
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Say's Law allows growth theorists to:
ignore aggregate demand and focus only on aggregate supply.
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Robert Lucas reflects the view of many economists when he argues that the most effective way to reduce world poverty is to:
increase long-run growth.
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The effect of specialization and the division of labor is to make us:
more productive and more dependent on others.
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The Rule of 72 implies that a country with a growth rate of 8 percent will double its income in about:
9 years
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The Rule of 72 implies that a country will double its income in about 18 years if its growth rate is:
4 percent
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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:
100 percent larger than Malaysia's per capita output.
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Which of the following is not a type of capital that will contribute to economic growth?
social capital
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Economic growth causes:
the production possibility curve to shift out.
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The growth produced by markets:
makes the average person better off but may worsen the distribution of income.
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The effect of economic growth generally has been to make:
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:
\$11,300
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If per capita output falls by 2 percent and population grows by 3 percent, output:
grows by 1 percent.
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Financial markets are a key institution of growth because:
they move funds from those who save to those who invest.
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Suppose that a business discovers an opportunity that requires funds to exploit. What effect would this have in the market for loanable funds?
It will increase interest rates and the quantity of funds lent will rise.
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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:
human capital.
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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:
growth-compatible institutions.
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According to economist Hernando DeSoto, the lack of formal property rights in many poor countries limits economic growth because informal property rights:
limit the amount that businesses and households can borrow.
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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?
They have provided individuals with a greater incentive to be efficient.
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Growth compatible institutions:
have incentives built into them that lead people to put forth effort.
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A resource the United States lacked in the 20th century and had to import was:
labor
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One reason why the Soviet Union grew slowly in the 20th century compared to the United States and Western Europe was that it:
did not provide incentives for individuals to produce what consumers valued.
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Factory buildings are an example of:
physical capital
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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?
human capital
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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?
Technology
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The law of diminishing marginal productivity applies whenever:
only one input is increased
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The law of diminishing marginal productivity implies that opportunity cost:
increases as one input is increased to produce successive units of output.
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According to the Classical growth model, the most important source of economic growth was:
capital accumulation.
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According to the Classical growth model, an economy that increases its saving will grow:
quickly since the increase in saving will permit greater investment
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Which of the following is least likely to increase potential output?
Increased aggregate demand
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According to the Classical growth model, population growth:
eventually reduces output per worker.
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In the Classical growth model, the economy attains a stationary state because:
additional population would cause wages to fall below subsistence and would reduce population.
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The iron law of wages was the belief that:
population increases as long as wages were above the subsistence level
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The economist who stressed the importance of the entrepreneur in economic growth was:
Joseph Schumpeter.
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How do investment in technology and investment in capital differ?
They have different effects on output because of the positive externalities associated with investments in technology.
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Positive externalities of technological change result from:
the common knowledge embodied in many technologies.
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Patents: