Chapter 27

The Rule of 72 implies that a country with a growth rate of 6 percent will double its income in about:

12 years

Who most likely worked longer to buy a dozen eggs: a person living in 2017 or a person living in 1910? Why?

A person living in 1910 because real per capita income has increased since 1910.

Why hasn't Thomas Malthus's prediction come true?

Because labor has become more efficient as a result of education and technological progress, output per worker has increased.

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.

In what ways do informal property rights limit growth?

Informal property rights limit growth by limiting the size of companies and by limiting access to business and individual loans when people don't have legal collateral

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.

New growth theory emphasizes the importance of increases in what factor in explaining growth?

Technology

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.

Market economies have been successful in leading to economic growth because they have:

channeled individual efforts toward production and growth.

Say's Law allows growth theorists to:

ignore aggregate demand and focus only on aggregate supply.

Classical growth theory and new growth theory both contribute to economists' understanding of how the sources of growth lead to economic growth. They are similar in that they both:

require investment for growth.

Classical growth theory and new growth theory both contribute to economists' understanding of how the sources of growth lead to economic growth. They are different because classical growth theory focuses on:

saving and investment while new growth theory focus on technological change.

On what law of production did Thomas Malthus base his prediction that population growth would exceed growth in goods and services?

the law of diminishing marginal productivity