chp 11 HW and Quiz
New growth theory suggests that the accumulation of knowledge capital can be slowed because knowledge is both nonrival and nonexcludable. How does the federal government intervene in the market to increase the amount of knowledgecapital?
Subsidies Public education Patents
Consider the figure to the right. Which of the following is responsible for the upward shifts in the per-worker productionfunction?
Technological change
Refer to the diagram to the right. Based on the "catch−up line", poorer countries are more likely to be at a point like________, where growth in GDP is relatively ________, while richer countries are more likely to be at a point like________, where growth in GDP is relatively ________.
A; high; B; low
A policy that offers parents a tax reduction based on how much they are saving for their children's college education should _________ the equilibrium level of loanable funds and _____________ the rate of long term growth.
increase; increase
The per−worker production function has a ________ slope, indicating that increases in capital per hour worked ________ real GDP.
positive; increase
A "tax perk" is a decrease in a firm's tax obligation. Firms that receive tax perks are more likely to grow and expand than firms that don't receive tax perks. Levy must be assuming that the productivity of small firms is lower than the productivity of large firms. In which case, favoring small firms with tax perks is likely to decrease the growth of the Mexican economy. By "contract enforcement," Levy is implying that agreements made by individuals and firms should be
binding, and individuals and businesses that do not fulfill their end of the bargain will face repercussions.
Which of the following explains the ability of the U.S. economy to avoid diminishing marginal returns and experience accelerating growth in the U.S. in the early to mid−20th century?
continuing technological change
Why might better contract enforcement increase economic growth? Without contract enforcement,
firms may have difficulty finding investors willing to provide them with the funds they need to expand. firms may be reluctant to enter into agreements with other firms, resulting in slower and more inefficient production. bribery and government corruption are more likely to exist.
Technological change is more important to long-run economic growth than changes in capital. The easiest way for firms to gain access to new technology is through
foreign direct investment.
Other high-income countries have had trouble completely closing the gap in real GDP per capita with the United States because the United States has
greater flexibility in labor markets and greater efficiency in the financial system.
Firms are likely to underinvest in research and development, which slows the accumulation of knowledge capital, slowing economic growth, because Government policy can increase the accumulation of knowledge capital in all the following ways except by:
knowledge capital is both nonrival and nonexcludable; other firms can freely access the research and development of one particular firm. investing in capital accumulation.
The economic growth model predicts that the Have poor countries been catching up to rich countries?
level of per capita GDP in poor countries will increase faster than rich countries and the poor nations will catch up with the rich nations. There has been catch-up by some poor but industrialized countries
Because of the productivity slowdown in the United States from the mid−1970s through the mid−1990s,
real GDP per capita grew more slowly.
Compared to the period between 1950 and 1973, the productivity of U.S workers between 1974 and 1995
slowed by more than one percentage point per year.
Which of the following events marks the beginning of significant economic growth in the world economy?
the Industrial Revolution in England
The migration of highly educated and successful individuals from developing countries to high-income countries is called
the brain drain.
Healthier, more educated workers tend to be more productive. Greater overall productivity per hour worked is a fundamental component of long-term economic growth. However, many very successful individuals often find few opportunities in their own developing countries, and leave them for industrial countries. By improving health and education, developing countries can generate economic growth, and increase incomes. This will help combat the prevalence of educated people leaving their home countries for opportunities elsewhere. That is, it will combat
the brain drain.
What term describes the relationship between real GDP per hour worked and capital per hour worked, holding the level of technology constant? Along the per-worker production function, what happens to real GDP per hour worked as capital per hour worked increases?
the per-worker production function Real GDP per hour worked increases at a decreasing rate.
If real GDP per capita in the United States is $8,000 in 2020, and if real GDP per capita is $12,000 in 2030, what is the approximate average annual percent change in the growth rate of GDP per capita between 2020 and 2030?
5%
The country Panjim has been growing at the rate of 8 percent annually following a series of economic reforms. Adelphia, a neighboring country, is also growing rapidly, but at a rate that is slightly lower than Panjim's. Elaine Mack and PriscaBaresi, who live in Adelphia, are discussing whether Adelphia's economy will surpass Panjim soon. Elaine is of the opinion that the high level of sales of capital goods indicates that growth in Adelphia will only increase further. Prisca however reminds Elaine that the working population in Adelphia is shrinking, which will actually reduce its growth prospects. Which of the following, if true, will weaken Elaine's view that growth in Adelphia will surpass growth in Panjim?
Adelphia has a larger population than Panjim but the level of GDP in Panjim is twice as high as that of Adelphia.
Suppose two countries, Country A and Country B, have a similar real GDP per capita. Country A has an average economic growth rate of 2% and Country B has an average economic growth rate of 3.3%. In the long run, what can we predict about living standards in the two countries?
Country B's living standards will increase much more rapidly in the long run.
Two students, Ryan Wattenberg and Emma Bennett, are discussing the idea of convergence over coffee. Ryan considers convergence to be true in theory but impractical in the real world. He claims that most low-income developing countries are stuck in a cycle of poverty and so cannot catch up with developed countries. With increased globalization, Emma feels that the developing countries are growing and will converge with higher-income countries eventually. Zoey Smith, a friend oftheirs, however thinks that the evidence on convergence is rather unclear. Despite the fact that developing countries are growing much faster than the developed countries, she thinks that they will not be able to catch up with the developed nations in the near future. Which of the following, if true, will strengthen Ryan's argument that developing countries will not catch up with developed countries?
Credit creation by the formal banking system in most developing countries has been falling or stagnant in the last five years.
Which of the following periods in U.S. economic history had the slowest growth rate, as measured by the average annual increase in real GDP per hour worked?
1974-1995
Consider the figure on the right. It shows growth rates in real GDP per hour worked in the United States for various periods from 1900 onward. According to the figure, economic growth (as measured by growth in real GDP per hour worked) in the United States was slowest during the period from
2006 - 2016
An article in the Economist describes the views of Santiago Levy, a former official of the Inter-American Development Bank: "He thinks that Mexico . . . needs to replace restrictions on firing with unemployment insurance and shift the tax burden away from payrolls, abolish tax perks for small firms and take contract enforcement more seriously. The prize would be faster growth . . . and better-paid jobs." Source: "Why Mexico Has Not Become More Prosperous—And How It Could," Economist, July 19, 2018. a. Why might replacing legal restrictions on firing workers with unemployment insurance (which is the approach used in the United States) increase economic growth?
Firms may hire more workers if they can fire workers with low productivity or those who are a poor fit for the job. It would make it easier for firms to get rid of workers who it no longer needs or who are not productive in their job.
Consider the choices below. All of these except one truly represent the record of productivity growth in the United States from 1800 to the present. Find the one that does not belong.
GDP per capita fell rapidly between 1900 and 1950.
Why do economic growth rates matter?
High levels of sustained economic growth reduce infant mortality. High growth rates coincide with improved living standards. When a country sustains high growth rates, life expectancy at birth increases.
Suppose you are discussing global trade with a friend who insists a country would be better off by restricting trade and investment with other countries. Which of the following economic responses would be the most logical for your discussion?
I am not sure I agree. Countries that allow more globalization have experienced higher rates of economic growth and typically can utilize greater levels of foreign direct investment to increase economic growth.
Indicate which of the following is an explanation for the productivity slowdown of 1974-1995.
Increased production and transportation costs A shift from a goods-based economy to a service-based economy Deterioration of the U.S. educational system
The country of Alcazar has been growing at an impressive pace for the last five years. With improvements in technology, many industries have recorded remarkable growth in productivity. An accountant, Lucas Eggers, however argues that people in the economy are not necessarily better off because mechanization and technology usually eliminate jobs. Toby Hartmann, who works at a bank, disagrees with Lucas. He thinks that Alcazar's high economic growth and wellbeing have been driven by this increase in productivity. Which of the following, if true, would weaken Lucas' view that people are not necessarily better off?
Increasing productivity has ensured that wage inflation in Alcazar does not result in higher product prices.
What is the difference between foreign direct investment and foreign portfolio investment?
Individuals engage in foreign portfolio investment, but only firms can engage in foreign direct investment.
When low income countries begin to experience economic growth, they often do so at rates much higher than current growth rates of industrial nations. Which of the following does not provide an explanation of this phenomenon?
Industrial countries have higher rates of growth in physical capital and developing countries are not able to invest in large quantities of capital.
Briefly explain how a poor country might benefit from foreign portfolio investment or foreign direct investment.
It can give low-income countries access to technology and funds that otherwise would not be available.
Who developed a growth model that suggests new products unleash a "gale of creative destruction" that drives old products out of the market?
Joseph Schumpeter
The figure to the right illustrates the relationship between weak and strong rule-of-law countries and economic growth. In addition to a country's failure to enforce rule-of-law, what else explains why more low-income countries do NOT experience rapid growth as the catch-up line predicts?
Lengthy civil wars Inability to borrow money needed for investment Shortage of childhood vaccinations
Strong rule-of-law countries grow more rapidly than weak rule-of-law countries. What factor will most likely improve economic growth in weak rule-of-law countries?
Political reform
Refer to the graph. According to the economic concept of catch-up which of the following is CORRECT?
Poorer countries should grow more quickly and will be at point A.
What can low-income countries do in order to increase the amount of loanable funds available to firms for investment projects such as new factories or improved technology?
Provide savings incentives
The economic growth model explains growth in real GDP per capita in the long run. Because of the importance of labor productivity in explaining economic growth, the economic growth model focuses on the causes of increases in long-run labor productivity. What are the key factors that determine labor productivity? (Mark all that apply.)
Quantity of capital per hour worked Technological change
b. What are the possible negative effects of taxing business payrolls rather than taxing incomes? Taxing business payrolls is likely to _______ the number of workers hired and _______ the return to working (and saving and investing).
Reduce; lower
A recent industry report concluded that the global demand for the good X is expected to increase. Based on the demand projections given in the report Colaba, a firm that produces and sells X, is contemplating hiring more labor to increase production. Maria Williams and Christopher Lockhart, both stock market analysts, are discussing the prospects of the firm. Maria thinks that Colaba is a good stock to buy because she expects their profits to increase. Christopher's opinion differs. He says that an increase in Colaba's workforce will only increase the wage bill and reduce its profits. Which of the following, if true, would strengthen Maria's argument that Colaba's profits will increase as more labor is hired to cater to the increased demand?
The current rate of capacity utilization at Colaba is only 55 percent.
If real GDP per capita in the United States is growing at an annual rate of 3.2% and Bolivia's real GDP per capita is growing at a rate of 1.3%, which of the following would we expect in the long run? Assume real GDP per capita in the United States begins at a level above that of real GDP per capita in Bolivia.
The difference between the level of real GDP per capita in the United States and real GDP per capita in Bolivia will increase over time
According to new growth theory, one way to create additional economic growth is by raising the level of firms' knowledge capital. Suppose government policymakers wanted to assist the country in the development of knowledge capital. Which of the following policies would lawmakers not want to use to help in the development of knowledge capital?
The government could reduce corporate tax rates for service and retail companies.
The figure in the shows the impact of technological change on the per-worker production function. Use the figure to help determine which one of the following statements is true:
The graph shows that with $50,000 in capital per hour worked, Production function4 produces the most real GDP per hour worked.
How might the growth rates in the figure be different if they were calculated for real GDP per capita instead of per hourworked? (Hint:How do you think the number of hours worked per person has changed in the United States since 1900?)
The growth rate of real GDP per capita would be higher than the growth rate of real GDP per hour.
The figure shows average annual growth rates in real GDP per hour worked in the United States. Based on the data from the figure, which one of the following statements is false?
The growth rate of real GDP per hour worked has continually accelerated over time.
Dan Demaar and Rob Runten are working on a class assignment on economic growth. Dan collects the GDP growth data for the country Fanez, which is located in the Middle East. He states that the standard of living in Fanez must have increased remarkably over the past ten years because it has a total GDP of $1,049 million, which is twice its GDP ten years back. Rob does not fully agree that the situation has improved substantially over these 10 years. He looks at the data and points out, that growth in Fanez was in fact very slow during this time. Its annual growth rate, while always positive, never exceeded 1.2 percent. Which of the following, if true, would weaken Dan's argument?
The growth rate of the population in Fanez has consistently exceeded the real GDP growth rate.
Using GDP per capita in 2016 (measured in U.S. dollars, corrected for differences across countries in the cost of living), identify which one of the following statements is true?
Western Europe, Australia, Canada, Japan, New Zealand, and the United States are high-income countries.
Along the downward-sloping catch-up line, a country near the top of the line is
a poor country growing rapidly.