Macroeconomics Chapter 24

What does NOT drive productivity growth?

growth convergence

To acquire human capital a person would ______ a printing press

learn to use

(T/F) According to the convergence hypothesis, differences in GDP per capita among countries tend to narrow over time because countries that start with a lower real GDP per capita tend to have negative growth rates.

False

(T/F) According to the convergence hypothesis, the richest countries have the fastest growth rate of real GDP per capita.

False

(T/F) After the price of oil increased in the 1970s, the growth rate of the United States declined substantially.

False

(T/F) As a result of the long-term growth between 1900 and 2010, the output per person in the United States was about twice as large in 2010 as it was in 1900.

False

(T/F) Because the gap in real GDP per capita between Western Europe, North America, and parts of Asia is widening, the convergence hypothesis is wrong.

False

(T/F) Between 1990 and 2005 the price of oil was high relative to prices in the 1970s and 1980s, and consumers responded by buying small, fuel-efficient cars.

False

(T/F) If technology improves, then it takes more inputs to produce the same output as the last period.

False

(T/F) Sustainable long-run economic growth is long-run growth that can continue in the face of decreases in the growth rate of the world's population.

False

(T/F) The purpose of a cap and trade system is to encourage trade between countries by limiting the amount of tariffs that can be imposed on traded goods.

False

Convergence is most likely between

France and Germany

The convergence hypothesis fits the data only when the factors that affect growth are held equal across countries. These factors include all of the following EXCEPT:

GDP per capita

Infrastructure includes...

New York City's public transportation system

raises total factor productivity

Technological change

(T/F) A rise in real GDP that is the same as the rate of population growth leaves the average standard of living unchanged.

True

(T/F) According to estimates of the aggregate production function, each 1% increase in physical capital, holding human capital and technology constant, raises labor productivity by 0.33%.

True

(T/F) According to the rule of 70, a 10% annual increase in real GDP would lead to a doubling of real GDP in seven years.

True

(T/F) An example of a public good that encourages economic growth is public health services, such as vaccinations.

True

(T/F) Between 1980 and 1994, growth rates of real GDP per capita in sub-Saharan Africa fell by more than 10%.

True

(T/F) Growth accounting estimates the contribution of each major factor in the aggregate production function to economic growth.

True

(T/F) If an economy doubles its growth rate in per capita GDP over 14 years, then the growth rate in per capita GDP averaged 5% per year.

True

(T/F) In 1820, Mexico had a somewhat higher real GDP per capita than Japan, but today Japan's is higher than Mexico's.

True

(T/F) Increases in human capital will promote economic growth.

True

(T/F) Most of the rapidly growing Asian nations, though poor, have increased their productivity by providing a very good basic education for their citizens.

True

(T/F) Physical capital consists of man-made resources like machines and buildings.

True

(T/F) The average level of education, measured by the number of years the average adult has spent in school, is higher in Argentina than it is in China.

True

(T/F) The three main reasons that the average U.S. worker today produces far more than his or her counterpart a century ago are more physical capital, more human capital, and a great deal of technological progress.

True

reduces climate change by requiring individuals and firms to buy licenses to emit greenhouse gases

a cap and trade system

Economists mostly agree that the problem of climate change necessitates government action in the form of market-based incentives such as

a carbon tax or a cap and trade system.

It took India more than 40 years to exhibit high economic growth after it gained independence from British rule in 1947. This faster rate of growth resulted from...

a reduction in the burden of corruption

Diminishing returns to physical capital implies that when the human capital per worker and the state of technology remain fixed, each successive increase in physical capital leads to _____ productivity.

a smaller increase in

When the government invests in building roads, ports, and a reliable power grid, it is investing in a nation's

infrastructure

The value of real GDP divided by population for a given country is...

the real GDP per capita

the number of years for a variable to double equals 70 divided by its annual growth rate.

the rule of 70

Which changes would contribute to a nation's rapid long-run economic growth?

faster technological progress

the education and knowledge embodied in the workforce

human capital

Labor productivity growth can be attributed to...

improvement in technology

In the long run, an increase in saving will generally

increase the rate of economic growth

From 2010 to 2011 nation A's real GDP increased from $100 billion to $106 billion and its population grew from 50 million to 51 million. As a result real GDP per capita _____, because it rose _____ than the population.

increased; faster

Economists say that long-run economic growth is almost entirely due to...

rising productivity

Today China is the fastest-growing major economy and it also...

spends a higher share of its GDP on investment goods than did other major economies.

Since the 1960s, nations like South Korea have been a part of the so-called East Asian economic miracle because of...

the combination of rapid technological progress, high savings rates, and rapid improvement in human capital.

Growth accounting enables us to calculate...

the effects of technological progress on economic growth

Written in 1972, the book that argued that long-run economic growth was not sustainable because of limited supplies of natural resources was called

"The Limits to Growth"

In 1820, Mexico had a higher real GDP per capita than Japan, but today Japan's real GDP per capita is higher than Mexico's because Japan's real GDP per capita has grown at _____, and Mexico's real GDP per capita has grown at _____.

1.9%; 1.3%

According to the rule of 70, if a country's real GDP per capita grows at an annual rate of 2% instead of 3%, it will take _____ additional years for that country to double its level of real GDP per capita.

11.67

A typical family in the United States in 1900 had a purchasing power equal to _____ of the real U.S. GDP per capita in 2010.

13%

In the popular press we see many pictures of affluent people in Indian cities. Yet the average person in India today is poorer than the average person in the United States was in...

1900

If real GDP doubles in 35 years, its average annual growth rate is approximately

2%

There are two countries on a peninsula. The first has a per capita annual growth rate of 2%, and its neighbor to the south has an annual growth rate of 5%. How much sooner will the country in the south double its GDP per capita than its neighbor in the north?

21 years

If output is growing at 5% annually, how many years will it take for output to quadruple?

28 years

According to the rule of 70, if a country doubles its real GDP per capita every 20 years, that country must be growing at an annual rate of

3.5%

Suppose a panel of economists predicts that a nation's real GDP per capita will double in approximately 20 years. According to the rule of 70, what must be the predicted annual growth rate of real GDP per capita?

3.5%

Suppose a panel of economists predicts that a nation's real GDP per capita will have an average annual growth rate of 2%. According to the rule of 70, how many years will it take for this nation's real GDP per capita to double?

35

Sweden has real GDP per capita of $50,000, while Chile has real GDP per capita of $25,000. If real GDP per capita in Sweden grows at 2% and Chile's real GDP per capita grows at 4%, how long will it take for real GDP per capita in the two nations to converge?

35 years

From 2010 to 2011 nation A's real GDP increased from $100 billion to $106 billion and its population grew from 50 million to 51 million. Its annual growth rate in real GDP per capita was approximately:

4%

Output per capita in the United States in 2010 was about _____ as high as in 1900.

8 times

If real GDP in country A is $500 billion one year and is $540 billion the following year, this means the growth rate for this country between the two years is...

8%

predicted that limited land supplies would prevent large increases in real incomes per capita.

Thomas Malthus

(T/F) One factor contributing to a slow rate of economic growth in Latin America is that broad basic education has been underemphasized in most countries.

True

The aggregate production function exhibits _____ returns to _____ capital.

decreasing; physical

Economies with high growth rates tend to be those that increase their

human capital

Rising high school graduation rates are an example of an increase in...

human capital

What CANNOT properly be called a part of infrastructure?

human capital

Before the twentieth century, the most important determinant of productivity was...

natural resources

A key input for measuring economic growth is...

real GDP per capita

The key measure used to track economic growth is...

real GDP per capita

The standard of living in a country can be best measured by

real GDP per capita

The aggregate production function measures productivity as...

real GDP per worker

China has much higher rate of growth than the United States, but the average Chinese household is _____ a typical U.S. household. China's real GDP per capita is _____ that of the United States.

still far poorer than; much lower than

For developed countries, which of the following is considered the most important driver in productivity growth?

technological progress

workers can produce more with fixed amounts of physical and human capital if...

technology advances

Which of the following CAN properly be called a part of infrastructure?

the Golden Gate bridge

The fundamental argument in the Essay on the Principle of Population was that improvements in technology or increases in physical capital would lead to only temporary improvements in productivity because they would always be offset by...

the pressure of rising population and more workers on the supply of land

Investment in human capital shifts the aggregate production function

upward

In general, the growth in real GDP per capita

was greater than the growth of per capita oil consumption after 1973.

Diminishing returns to physical capital suggests that...

when the amount of human capital per worker and the state of technology are fixed, successive increases in the amount of physical capital per worker lead to smaller increases in productivity

Real GDP per capita, growing at a constant rate over a 35-year period, has doubled at the end of that period. What must the annual growth rate of real GDP per capita be for this economy?

2%

According to the rule of 70, if real GDP per capita is growing at 2% a year, in 100 years it will have increased by

about 7 times

Diminishing returns to physical capital means that as more and more physical capital is combined with a fixed amount of human capital and a fixed technology, eventually...

additions to aggregate output or real GDP decline.

What will NOT increase the productivity of labor?

an increase in the size of the labor force

One of the most important types of infrastructure that a government can provide is...

basic health measures such as clean water and disease control

What is a government policy to promote economic growth?

building infrastructure and providing public goods

The aggregate production function exhibits _____ returns to physical capital.

diminishing

A country's growth rate strongly depends on how it has invested in its physical capital. Generally, countries that have used _____ as a source of their capital investment have exhibited the highest growth rate.

domestic saving

What are sources of funds for investment spending?

domestic savings and foreign savings

The rule of 70 is most useful in...

estimating the doubling time of real GDP for a given growth rate.

Education's effect on productivity is...

even more important than increases in physical capital

The East Asian countries have exhibited tremendous economic growth during the past 40 years because of all of the following EXCEPT:

intervening governments with lots of regulations

comes from the savings of either domestic or foreign households.

investment spending

What is NOT part of infrastructure?

iron ore deposits

Long-run growth is sustainable if...

it can continue in the face of limited natural resources and the impact of growth on the environment.

An example of human capital is a person's

job skills

In the book "The Limits to Growth", The Club of Rome argued that...

limited supplies of natural resources made long-run growth unsustainable

What factors have contributed to the lack of economic growth in Latin America?

low rates of savings and investment, low value on education, and political instability

An increase in the amount of physical capital per worker _____, while technological progress _____.

moves the economy along the aggregate production function; shifts up the aggregate production function

a cost that individuals or firms impose on others without having to offer compensation

negative externality

The convergence hypothesis is...

not wrong, but education, infrastructure, and the rule of law are not equal among nations.

The main source of Kuwait's wealth is _____, while the main source of Germany's wealth is_____ .

oil; manufacturing

Today, more than _____ of the world's population lives in countries poorer than the United States was a century ago.

one-half (1/2)

Sub-Saharan Africa is so poor mainly because of...

political instability and civil war

What factors have contributed to the lack of economic growth in Africa?

political instability, lack of spending on education and infrastructure, and malnutrition and disease

Technological change...

raises total factor productivity

Technological progress is advanced through

research and development