Exam 2

¡Supera tus tareas y exámenes ahora con Quizwiz!

The Industrial Revolution affected economic growth​ ____________.

because technological​ changes, such as new machinery and new methods of​ production, became more systematic and​ pervasive, underpinning economic growth.

H is the

efficiency units of labor used in production .

Suppose the country of Burondo is one of the poorest countries in the world. Its economy is heavily reliant on income from the export of oil. There are only two​ oil-extracting companies in Burondo. Both are owned by the government. A large part of the earnings from oil exports goes toward financing the​ president's lifestyle and entourage. Burondo has not had a single democratic election ever since it gained independence 50 years ago. Although Burondo is said to have abundant oil​ resources, only a small proportion is extracted every year because the extraction process is so inefficient. Transporting goods in and out of the country is​ costly, as Burondo is surrounded by lofty mountain ranges. School enrollment in this country is very low and as a​ result, most of the adult population is illiterate. Life expectancy is also quite low. Agriculture is collectivized in Burondo and so food shortages are common in the country. Using the information​ given, distinguish between the fundamental and proximate causes of prosperity​ (or its​ absence) in Burondo. Proximate causes of​ Burondo's lack of prosperity are​ ___________. ​(Check all that apply.​)

the workforce is not skilled. most of the adult population is illiterate. school enrollment is low food shortages affect health

Productivity varies across countries because​ ___________.

all of the above.

The graph on the right shows an index of world GDP per capita from 1000 BC to the year 2000. As you can​ see, over most of that​ period, global economic growth was virtually nonexistent. While there were periods that experienced some increase in per capita​ income, sustained growth begins only in the middash-18th ​century, and explodes after thatlong —by the year​ 2000, income per capita is 12 times what it had been 250 years before. The dramatic change in economic growth beginning in the 18th century may be accounted for by

A and C only.

Which of the following are important determinants of the technology available to an​ economy?

A and C only.

The level of economic activity is calculated using the income method by​ ____________.

all of the above.

Over the past 200​ years, the U.S. economy has shown​ ____________.

an increase in income per​ capita, albeit not an entirely steady one.

Which of the following is an example of a proximate cause of​ prosperity?

Human capital

Physical capital is

any good, including machines and buildings, used for production.

F is best described as

a relationship between the variables

Y stands for

real GDP

Economists include the word final in the definition of GDP because we​ ____________.

A and B only.

Parts of the world that were relatively more prosperous 500 years ago have experienced a reversal of fortune and are relatively poorer today. What factors could explain​ this?

A and C only.

​Production-based accounting is used to estimate GDP by​ ____________.

A and C only.

Suppose that country A has higher real income per capita than country B. Explain why this does not imply that most citizens of country A have higher real income than most citizens of country B.

A high degree of income inequality in country A may result in most of its citizens having incomes below the average income of country B.

Which of the following may account for variations in real income per capita or real income per worker across​ countries?

All of the above.

What are the consequences of this decrease in real GDP for real GDP per capita and real GDP per​ worker?

Both of these items will decrease.

What does​ Moore's Law​ predict?

Computer processing power would double approximately every 2 years.

To analyze patterns of prosperity and growth before modern day GDP​ statistics, we need to find another way to measure prosperity and growth. To measure prosperity in​ 1500, the EBE depends on all of the​ following, except​:

Countries with low GDP per capita tend to have a large population density.

Consider two countries−country A and B. Both economies are exactly similar in all aspects except for one. There are well−defined property rights in country​ A, while there are no property rights in country B. Given this​ information, which of the following statements is likely to be​ true?

Economy A is likely to grow faster than economy B.

Suppose a country has​ well-enforced private property rights for​ entrepreneurs, but a large fraction of the population does not have access to education and thus cannot become entrepreneurs and would have low productivity as workers. Would you say this country has inclusive or extractive economic​ institutions?

Extractive​ institutions, because barriers block access to education.

​Zimbabwe, formerly known as​ Rhodesia, was a British colony for around ninety years. It became independent in 1980. The prime minister of newly formed​ Zimbabwe, Robert​ Mugabe, implemented a forced land redistribution​ policy, where commercial farms were confiscated from white farmers. Mugabe also proceeded to confiscate shares in companies owned by whites. In the following​ years, agricultural production in the country fell sharply.​ Zimbabwe, the country that used to be called the breadbasket of​ Africa, is now seeing food shortages in certain parts of the country. Would Zimbabwe be considered to have extractive or inclusive​ institutions? Explain your answer.

Extractive​ institutions, because it​ doesn't protect property rights.

Exponential growth is the​ ____________.

process by which new growth builds on past​ growth, leading to a​ (roughly) constant growth rate.

Why is efficiency of production so important to real​ GDP?

Higher efficiency translates into higher incomes for workers.

What important factors do GDP estimates leave​ out? ​(Check all that apply​.)

Home production. Leisure. Capital depreciation. The production of illegal professions.

Every five​ years, the Bureau of Economic Analysis​ (BEA) revises past GDP figures and the methodology involved in computing national income. In June​ 2013, the BEA decided to increase the weighting given to the creation of intellectual property in the national income accounts. This means that the intellectual property involved in the creation of​ books, movies,​ photographs, and even greeting cards will be included in GDP.​ Moreover, the initial cost of producing intellectual property will be treated as a capital investment and future flows of revenue from the book or TV show will be added later on. What are the possible difficulties that the BEA could face with this new​ approach?

Identifying the qualifying expenditures that lead to the creation of the intellectual property. Deciding how broadly or narrowly to define the concept of intellectual property.

The old Soviet Union devoted enormous resources exclusively to increasing its physical capital​ stock, and yet eventually the increase in the​ country's real GDP came to an end. Based on the discussion in the​ chapter, explain why this was inevitable.

In the absence of technological​ innovation, massive capital investments yielded diminishing marginal returns.

Productivity is​ ____________.

the value of output that a worker generates for each hour of work.

In drawing these​ conclusions, one should remember that the measure of the contribution of U.S. technology in each period​ is:

Inferred or calculated as what is left over after subtracting the percent contribution of human and physical capital.

Now that we have considered human and physical​ capital, let's turn to the impact of technology on real income per worker. According to the description in EBE​ 6, each​ country's measure of technology​ is:

Inferred or calculated by assuming that any GDP that​ can't be accounted for by physical capital or labor in the aggregate production function is accounted for by technology.

Which of the following statements is true of foreign​ aid?

In​ practice, much of foreign aid does not get invested in new technology or education.

Higher quality U.S. data means we can measure U.S. productivity by GDP per hour worked. This is a better measure than GDP per worker​ because:

It removes any change in average hours worked when it figures productivity for each decade.

In the​ 1990s, Uganda received a sizable amount of foreign aid from the international community for education.​ However, only 13 percent of schools in Uganda actually received the grants funded by the aid. What might explain why so few Ugandan primary schools benefited from the foreign​ aid?

It was stolen by government officials for their own use.

According to the aggregate production​ function, which inputs drive​ production? ​(Check all that apply​.)

Level of technology. Total efficiency units of labor. Physical capital.

You read a newspaper report that compares wages paid to employees at Starbucks in India and in the United Kingdom. At the​ time, 1 pound was equal to 87 rupees. The report says that Starbucks baristas in India are paid a mere 56 pence an​ hour, which is lower than the cheapest coffee that Starbucks sells in the United Kingdom. A friend of yours who read the report is appalled by this information and thinks that Starbucks ought to raise its salaries substantially in India. Is your friend necessarily​ correct?

No, the flaw in the report is that it converts the wages paid in India to pounds using the current exchange​ rate, but does not account for the cost of living​ (or the prices of​ goods) in India.

Could the country achieve a high level of economic​ development?

No, the​ country's extractive institutions limit prosperity.

Holding all else​ equal, will increasing the efficiency units of labor lead to sustained​ growth? Why?

Not​ likely, because each individual has a finite life and there is a limit to the number of years of schooling that an individual can obtain.

Suppose that there is technological advance from period 1 to period 2​ but, at the same​ time, a decrease in the physical capital​ stock? Can you say whether real GDP will increase or​ decrease?

Not​ really, since the two items have offsetting effects.

What policies can be used to raise real GDP in a​ country? ​(Check all that apply​.)

Raise physical and human capital. Improve efficiency in the allocation of resources Increase technology.

What does this correlation suggest about real income per capita as a measure of​ welfare?

Real income per capita is a reliablelong dash—though not perfectlong dash—indicator of human welfare within and across countries.

In the context of this​ chapter, what is meant by an​ institution?

Regulations. Laws

Which of the following are included in the United​ Nations' Human Development​ Index? ​(Check all that apply​.) There is a positive relationship between the Human Development Index and income per capita.

School enrollment. Income per capita. Literacy rates. Life expectancy.

Which of the following will be considered a final good in the calculation of U.S.​ GDP? ​(Check all that apply​.)

School supplies purchased by a local school board. Golf outings at courses in North Carolina Defense a equipment purchased by the federal government Foot massages at spas in California. Items are classified as final goods only if they are the end product in a chain of production.

The GDP deflator is calculated using​ ____________.

StartFraction Nominal GDP Over Real GDP EndFraction times 100 Nominal GDP Real GDP×100

What is the correlation between income per capita and welfare measures like absolute poverty and life​ expectancy?

Strong positive correlation.

Exhibit​ 7.11, summarizes the impact of all three factors to growth in GDP per hour worked for each decade since 1950. One could reasonably conclude​ that:

Technology has been the largest contributor in the decades where growth has been largest.

The geography hypothesis maintains that geographic features such as climate and soil conditions are the key determinants of differences in economic growth and prosperity. It is reasonable to conclude that this hypothesis is NOT the main explanation for the data in Exhibits 8.6 and 8.7 for which of the following reasons ​(Check all that apply​):

The activities that generate high levels of GDP per capita in 2010 are unlikely to be closely connected with climate and agricultural conditions. We observe lower prosperity in North America than in Peru and India in 1500. Mexico, India,​ sub-Saharan Africa are relatively poorer today than 500 years ago.

How are the proximate causes of prosperity different from the fundamental causes of​ prosperity?

The fundamental causes of prosperity are the factors that explain the levels of the proximate causes of prosperity.

Why is it essential to differentiate between real and nominal growth rates of​ GDP?

The nominal growth rate combines the effect of price changes along with changes in the production of goods and services and thus gives a less clear indication of the impact on living standards. It is the real growth rate that is meaningful since it indicates the change in the production of goods and​ services, a very significant source of improved living standards. B and C only.

Why was there no sustained economic growth before modern​ times, that​ is, before​ 1800? ​(Check all that apply.​)

The pace of technological change was much slower than in modern times. Increases in aggregate income were offset by increases in​ population, keeping per capita income low.

Suppose you are comparing the income per capita in the United States and Ghana. You try two approaches. In the first​ approach, you convert the Ghana values into U.S. dollars using the current exchange rate between the U.S. dollar and the Ghanaian cedi. In the second​ approach, you also convert both values to U.S. dollars using the purchasing power​ parity-adjusted exchange rate. Which approach is likely to give you a more accurate picture of the living standards in both​ countries?

The second​ approach, because it takes into account the relative costs for each country.

What is the key difference between the Consumer Price Index​ (CPI) and the GDP​ deflator?

The two indexes measure price changes for different​ "baskets" of products.

Which of the following are not included in GDP but probably should​ be? ​(Check all that apply​.)

The value of externalities. Home production. The value of leisure Transactions in the underground economy

Which of the following is one of the three important elements that define​ institutions?

They are determined by individuals. they determine incentives They place constraints on behavior

Why would a government undertake policies that would adversely affect the lives of its​ citizens?

To maintain its power.

Complete the formula for the aggregate production function.

Y = F (K​, H​).

In this​ question, we will use what you learned in the second part of the chapter to compare the performance of an economy in two different time​ periods, as its physical capital stock and efficiency units of labor change. Suppose that from period 1 to period​ 2, the unemployment rate in the economy increases. Everything else remains unchanged. The total efficiency units of labor will decrease because less workers are employed . What are the consequences of this increase in unemployment for​ GDP?

Y1 ​> Y2.

The national income accounting identity associated with the​ expenditure-based accounting method is represented by​ ___________.

Y=C+I+G+X−M.

Is​ Moore's Law borne out by historical​ data?

Yes, Moore's prediction has been remarkably accurate.

Population​ density, like the fraction of the population urbanized​ (the fraction of the population living in urban centers with​ 5,000 or more​ inhabitants), can be used as a measure of economic development for areas 500 years ago​ (say, in​ 1500). Suppose the graph on the right illustrates the relationship between population density in 1500 and GDP per capita in 1500 and between population density in 1500 and GDP in 2005. Based on this​ information, you can conclude there is​ ____________.

a positive relationship between population density in 1500 and prosperity has become negative.

The aggregate production function describes the relationship between the​ ____________.

aggregate GDP of a nation and its factors of production.

Households play a role in physical capital accumulation because​ ____________.

it is households that determine their level of consumption and therefore the rate of saving.

​Initially, the creation of railroads was opposed in some countries​ because:

it was likely to initiate creative destruction.

Human capital is

each person's stock of skills to produce output or economic value

When government statisticians gather and analyze data on the purchases of goods and of goods and services produced in the domestic​ economy, they are measuring GDP using the​ ____________.

expenditure​-based accounting method.

In​ 1950, GDP per capita in Germany was only​ $4,281. GDP per capita in Argentina that same year was​ $4,987. So, in 1950 Argentina was actually​ "richer" in per capita terms than Germany. By​ 1992, however, GDP per capita in Germany was​ $19,351, whereas GDP per capita in Argentina was only​ $7,616. ​(Note: All figures in this problem are given in​ constant, 1990​ dollars.) Between 1950 and​ 1992, per capita GDP in Germany increased by 352.0 percent while over the same period in Argentina it increased by 52.7 percent. ​(Round both answers to one decimal place.​) A country that has a lower GDP per capita than another country in some year can end up with a larger GDP per capita in later years because it has ​(Select all that apply​.)

generated faster improvements in the efficiency of its labor. initiated and used more rapid advances in technology. accumulated physical capital at a more rapid pace.

When government statisticians gather and analyze data on the income of various agents in the domestic​ economy, they are measuring GDP using the​ ____________.

income​-based accounting method.

According to the aggregate production​ function, GDP increases when a nation​ ____________. ​(Check all that apply.​)

increases the human capital of its​ workers, H. increases its stock of physical​ capital, K. improves its​ technology, A.

Based on your understanding of the​ chapter, poverty can best be reduced by​ ____________. ​(Check all that apply.​)

increasing international trade. improving the knowledge and technologies available in the world economy.

To say that private property rights are​ well-enforced in an economy means that​ ____________.

individuals can securely hold assets.

Factors of production are the​ ____________.

inputs used to produce other goods and services in an economy.

Physical capital accumulation is driven by​ ____________.

investment

In​ general, the subsistence level​ ____________.

is unique in each environment.

The subsistence level is the​ ___________.

minimum level of income per person that is generally necessary for an individual to survive.

The​ return-to-entrepreneurship curve shows the​ ____________.

number of entrepreneurs with at least a particular level of returns.

K is the

physical capital stock of the nation

Productivity varies across countries because of differences in​ ____________. ​(Check all that apply​.)

physical capital. technology. human capital.

A​ country's gross national product would exceed its gross domestic product when the​ ____________.

production of domestically​-owned factors operating abroad exceeds the production of foreign​-owned factors operating in the United States.

A​ country's gross domestic product would exceed its gross national product when the​ ____________.

production of foreign​-owned factors operating in the domestic economy exceeds the production of domestically​-owned factors operating abroad.

When government statisticians gather and analyze data on the value added by the firms in the domestic​ economy, they are measuring GDP using the​ ____________.

production​-based accounting method.

Private property rights foster economic development by​ ____________.

providing incentives to start a business.

The causes of prosperity that link high levels of prosperity to high levels of inputs of​ production, without explaining why the levels of those inputs are​ high, are referred to​ as:

proximate causes of prosperity.

Technology is

the ability to use labor and capital more efficiently

Fundamental causes of​ Burondo's lack of prosperity are​ ____________. ​(Check all that apply.​)

the geography is not favorable. the agricultural industry is collectivized. the government is an extractive political institution. the farmer have limited incentives to increase output

Economic growth is​ ____________.

the increase in income​ (GDP) per capita of an economy.

Give an intuitive explanation of the concept of​ "efficiency of​ production." Efficiency of production is the ability of the economy to produce​ ____________.

the maximal amount of output at a given cost or for given amounts of the factors of production

According to the geography​ hypothesis, incomes in poor countries are​ ____________.

unlikely to be​ changed, because climate is largely out of their control.

The opportunity cost of entrepreneurship is the​ ____________.

value to a potential entrepreneur of her best alternate activity.

Which of the following news stories​ (all published in early​ 2014) would typically be studied in​ macroeconomics? ​(Select all that apply​.)

​"We Believe Inflation Should Rule Monetary​ Policy." ​"Expectations High for March​ Employment." ​"What If Economic Growth Is No Longer​ Possible?"

If GDP per capita in year T is represented by YT​, and the GDP per capita in the following year is represented by Y​T+1​, then the formula for calculating growth rate between these two years is​ ________.

​(Y​T+1 − YT​)/YT

The chapter discusses Max​ Weber's argument that the origins of industrialization in Western Europe could be traced to Protestantism. According to​ Weber, the Protestant work ethic was crucial to the development of a market economy and economic growth.​ Weber, however, also claimed that religions like Confucianism in China and Hinduism in India were not conducive to the development of capitalism. Given that India and China are now among the​ fastest-growing economies in the​ world, how effective do you think the culture hypothesis is in explaining economic​ development?

​Ineffective, because​ culture's effect on growth is not linear.

Suppose that the GDP in current dollars for Polonia is higher than​ Ruritania's GDP.​ However, using purchasing power​ parity-adjusted dollars,​ Ruritania's GDP is higher than​ Polonia's GDP. Based on this​ information, you can conclude​ ___________.

​Ruritania's standard of living is likely to be better than​ Polonia's.


Conjuntos de estudio relacionados

Module 2 Chapter 6 Network Essentials

View Set

English: The Iroquois Creation Myth: "The World on Turtle's Back"

View Set

Fetal Pig Muscles - Origin and Insertion, Action

View Set

Qbank and Blue Box Questions 2022 CFA L3

View Set