econ ch 16

The "rule of 70" is a simple rule Select one: a. (70 divided by the percentage of population over age 70) that can be used to approximate a nation's growth of real GDP. b. (70 multiplied by the growth rate) that approximates the number of years it will take for income to double at various growth rates. c. (70 divided by the growth rate) that approximates the number of years it will take for income to double at various growth rates. d. (70 multiplied by the percentage of population over age 70) that can be used to approximate a nation's growth of real GDP.

(70 divided by the growth rate) that approximates the number of years it will take for income to double at various growth rates.

Why do some Countries Grow while others stagnate?

1. Gains from Trade a. Trade makes larger outputs possible because of division of labor, specialization in areas of comparative advantage, and application of mass production techniques. b. The gains from trade will be greater when transactions costs are lower and people are permitted to trade over a larger market area. 2. Technological Advancement 3. Investment in Physical and/or Human Capital a. More and better machines and tools can enhance the productivity of people. b. Education and training that improves the skill level of workers will also increase output. c. Other things constant, countries that invest more will tend to grow more rapidly. But, investment is costly; it involves the sacrifice of current consumption. d. High investment rates do not guarantee rapid growth. The investment must be channeled into wealth-creating projects.

Other Factors that Might Influence Growth

1. Population Growth 2. Natural Resources a. While resources may give a country an advantage, the linkage between resources and income is weak. i. Many high income countries have few natural resources: Japan, Singapore, and Hong Kong. ii. Many resource rich countries are poor: Nigeria, Venezuela, Indonesia, and Russia. b. Resource Curse: View that abundant resources often lead to the adoption of counterproductive policies. This would weaken the link between the abundance of natural resources & income levels. 3. Foreign Aid a. In the '50s & '60s, it was widely believed aid from high-income countries would help poor countries invest in infrastructure such as roads and power generating facilities and that this would provide the start-up capital needed to trigger the growth process. b. While the theory sounded good, studies indicate that the aid was largely ineffective. The aid was often used to prop up corrupt authoritarian regimes and thereby retard needed institutional change. c. Further, aid in the form of surplus agricultural products often disrupted markets in less developed countries. d. Unless growth-oriented policies are adopted, foreign aid will continue to be ineffective. 4. Climate and Location

Countries Average growth rate...

2% then 35 years to double GDP 3% then 23.3 years to double GDP 4% then 17.5 years to double GDP 5% then 14 years to double GDP

Life expectancy rose from:

24-26 in 1000-1820 31 in 1900 66 in 2002 70 in 2010 and 80 in the West

Why do some Countries Grow while others stagnate? (cont)

4. Institutional Environment a. Legal System i. Rule of law ii. Secure property rights iii. Even-handed application of the law (fairness) b. Competitive Markets c. Stable Money and Prices d. Minimal Regulations i. To open a business in 2015 1. 97 days in HAITI 2. 119 days in Brazil 3. 144 days in Venezuela 4. 2.5 days in Singapore 5. 4 in the US e. Avoidance of High Tax Rates i. High marginal tax rates reduce the incentive of people to earn, invest, and engage in other productive activities. ii. High taxes also reduce efficiency by driving productive activity into the underground economy, encouraging tax avoidance, and even inducing highly productive persons to move to other countries. f. Trade Openness i. With trade, countries can specialize in the production of goods they can produce economically and trade for those that would be costly to produce domestically. As a result, joint output can be expanded and both trading partners can consume a larger, more diverse bundle of goods. ii. Tariffs, quotas, and other trade restrictions reduce the gains from specialization and international trade and thereby reduce income below its potential

Prior to 1800 most of the world's population struggled ...

50, 60, & 70 hours of work just to get by

Which of the following is true for the world as a whole? Select one: a. During the past 200 years, the income per person of the world has increased sharply, but there has been little change in the years of life expectancy at birth. b. Both income per person and life expectancy rose steadily during 1000-1800, but neither of these indicators have increased much during the past 200 years as the population of the world has become larger and larger. c. During the past 200 years, the years of life expectancy at birth has increased sharply, but there has been little change in the world's income per person. d. During the 800 years between 1000 and 1800, the increases in both world income per person and life expectancy at birth were small, but both of these indicators have increased sharply during the past 200 years.

During the 800 years between 1000 and 1800, the increases in both world income per person and life expectancy at birth were small, but both of these indicators have increased sharply during the past 200 years.

Things change between 1800 to 1820 ...

World's income today now 12X the level in 1820 and Western Countries by 2010 had income 20 times the level in 1820

Which of the following is important if a country is going to achieve and sustain high rates of economic growth? Select one: a. investment in physical and human capital b. improvements in technology c. institutional and policy arrangements consistent with economic efficiency d. All of the above.

a. investment in physical and human capital b. improvements in technology c. institutional and policy arrangements consistent with economic efficiency (all of the above)

Increases in per capita GDP are Select one: a. important, because they generally improve our living standards. b. not important, as governments take the increased output and waste it. c. not important, because increases in per capita GDP do not affect our living standards. d. important, because it means governments have more resources.

important, because they generally improve our living standards

The successful introduction and adoption of a new product or process is called Select one: a. innovation. b. invention. c. economies of scale. d. economic growth.

innovation.

A legal system that protects private property and enforces contracts in an even-handed manner helps promote economic growth because it Select one: a. encourages people to use resources now rather than conserving them for the future. b. makes it possible for individuals to generate large incomes and get ahead without cooperating with others. c. keeps the real wages of workers low and thereby makes it possible for business firms to supply goods and services economically. d. provides people with a strong incentive to supply others with things that they value at an economical price.

provides people with a strong incentive to supply others with things that they value at an economical price.

When the residents of a nation are free to trade with foreigners, domestic producers will be able to Select one: a. survive in the marketplace even if they do not produce efficiently. b. supply a larger quantity of goods they can produce at a relatively low cost. c. export more goods for which they are a high-cost supplier. d. charge higher prices then would otherwise be the case.

supply a larger quantity of goods they can produce at a relatively low cost.

Country A and country B initially have the same per capita income. Suppose that A sustains an annual growth rate of 3.5 percent, while the annual growth rate of country B is 1.75 percent. The "rule of 70" indicates that after forty years, the per capita income of country A will be approximately ____ that of country B. Select one: a. twice b. four times c. 70 percent greater than d. one-half

twice

Rule of 70

years to double GDP=70/countries average growth rate ݁