10.1 Practice

Suppose you had a choice between living in the United States in 1990 with an income of $1,041,000 per year or in the United States in 2014 with an income of $59,000 per year. Assume the income for both years are measured in 2014 dollars. In which year would you have the highest real income? In which year would you have the better standard of living?

1900 2014

Real GDP per capita in the country of Arcadia grew up from about $4,188 in 1900 to about $39,744 in 2008, which represents an annual growth rate of 2.11 percent. If Arcadia continues to grow at this rate, calculate the number of years when its real GDP per capita will double __ years.

33

Think about the relationship between economic prosperity and life expectancy. The size of the health care sector in a less developed country is ___ the size of the health care sector of a developed country. In particular, the size of the health care sector in a developing country

smaller than grows with economic prosperity as life expectancy increases.

Potential GDP is

sometimes greater, sometimes less, and sometimes equal to actual real GDP.

Which of the following is the best measure of the standard of living of the typical person in a country?

real GDP per person

Real GP per capita in the United States grew from about $6,000 in 1900 to about $49,571 in 200, which represents an annual growth rate of 1.99 percent. If the United States continues to grow at this rate, it will take __ years for real GDP per capita to double. (round to decimal places) If government economic policies meant to stimulate economic growth results in the annual growth rate increasing to 2.74 percent, it will take __ years for real GDP per capita to double. (round to two decimal places)

35.18 25.55

If real GDP per capita grows at a rate of 8.3 percent per year, it will take ___ years to double. (rounded to one decimal place)

8.4 (70/8.3)

An article in the Economist magazine compares Panama to Singapore. It quotes Panama's president as saying: "We copy a lot from Singapore and we need to copy more." The article observes that: "Panama is not even one-fifth as rich as its Asian model on a per-person basis. But Singapore would envy its growth: from 2005 to 2010 its economy expanded by more than 8% a year, the fastest rate in the Americas." Judging from the experience of Singapore, if Panama is to maintain these high growth rates, what needs to be true about the sources of Panama's growth?

High rate of technological change.

Consider the importance of growth in GDP, particularly real GDP per capita, to the quality of life of a country's citizens. Indicate whether you agree or disagree with each of the following statements. Increases in real GDP per capita do not increase the amount of goods and services available to a country's citizens. Increases in real GDP per capita increase life expectancy at birth. Increases in real GDP per capita mean people will have a lower portion of leisure time over course of their lives.

I disagree with this statement. I agree with this statement. I disagree with this statement.

A few years ago, Russian Prime Minister Vladimir Putin called for a doubling of labor productivity over the next decade. An article on the Web site Russia Beyond the Headlines states that: "Russian productivity is a third of that in the United States." What factors would cause U.S. labor productivity to be nearly three times higher than Russian labor productivity? The article notes that one cause of low Russian labor productivity is "just bad management." Russian businesses might suffer from bad management because

The U.S. has more capital available per worker and higher levels of technology. the economy of Russia is a new market economy.

Amartya Sen, a professor of economics at Harvard and a Nobel Laureate, has argued: "For India to match China in its range of manufacturing capacity... it needs a better-educated and healthier labor force at all levels of society." Education and health care are important for economic growth because India has been able to experience rapid economic growth since 1991 despite poor educational and health care systems because

a well-educated an healthy workforce has higher productivity. the government scaled back central planning, reduced regulations, and introduced market-based reforms.

Which of the following changes does not cause an increase in the quantity of goods and services that can be produced by one worker, or in one hour of work? Which of the following changes will ensure that an economy experiences sustained economic growth?

an increase in the number of workers technological change

A newspaper article on labor productivity in the United States observes that, "...the best measure of productivity is probably output per hour, not output per person." The statement is

correct because of (a) and (c) a: correct because an hourly measure of productivity avoids the effects of fluctuations in the length of the workday and in the fraction of the population employed. c: correct because an hourly measure of productivity avoids the effects of fluctuations in the fraction of the population employed.

What is the rule of 70? The rule of 70

is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double.

The computation of the average annual growth rate of real GDP What is the best use of the rule 70 among those listed below?

is more complex when examining data for a long period of time than when examining data for only a few years. to judge how rapidly real GDP per capita is growing over long time periods.

According to an article on India in the Economist: "When the government announced its package of measures last September (2012), optimists hoped it was a moment to rival 1991." The article further states: "It is now clear that deep reforms are not going to happen in the near future, reflecting... a tricky political climate." The year 1991 is an important date in the history of India's economy because in this year, India has a "tricky political climate" because The article also states that "the hope is that India's politicians will finally be more serious about fighting graft and enacting reform." Graft is Graft can affect economic growth in India because it

the Indian government decided to scale back central planning, reduce regulations, and introduce market-based reforms. ethnic, religious, cultural, and geographic divisions often make it difficult for the government to successfully implement policy. payments to officials to look the other way or provide some special service. inhibits the efficient functioning of a market economy.

Potential GDP is Potential real GDP

the level of GDP attained when all firms are producing at capacity. grows over time.

The two key factors that cause labor productivity to increase over time are

the quantity of capital per hour worked and the level of technology.