Chapter 6

The key idea of classical growth theory that leads to the dismal outcome is that​ ______.

no matter how much technological change​ occurs, real GDP per person is always pushed back toward the subsistence level

China was the​ world's largest economy until 1890 because​ ______.

people in all countries had approximately the same subsistence level of income and China had the largest population

According to new growth​ theory, the growth of real GDP per person​ _______.

persists indefinitely

Once the preconditions for growth are in​ place, the influences on the pace of labour productivity growth are​ _______.

physical capital​ growth, human capital​ growth, and technological advances Most technologies are embodied in physical capital.

The growth rate of real GDP per person​ _______.

tells us about changes in the standard of living and the growth rate of real GDP tells us how rapidly the total economy is expanding

The quantity of labor supplied is the number of labor hours​ _______ during a given period.

that all the households in the economy plan to work

growth rate

the annual percentage change of a variable​ - the change in the level expressed as a percentage of the initial level.

In​ 1890, the United States surpassed China to become the​ world's largest economy because​ ______.

the benefits of the Industrial Revolution were greater in the United States than in China

real wage rate

the money wage rate divided by the price level.

Rule of 70

the number of years it takes for the level of any variable to double. It is approximately 70 divided by the annual percentage growth rate of the variable.

The two broad sources of potential GDP growth are growth of​ ______ and growth of​ ______.

the supply of​ labor; labor productivity

Classical growth theory

the view that the growth of real GDP per person is temporary and that when it rises above the subsistence​ level, a population explosion eventually brings it back to the subsistence level.

Potential GDP is determined by​ ______.

the​ full-employment quantity of labor

The sources of economic growth are​ _______.

work hours growth and labor productivity growth

An increase in labor productivity​ ______ the real wage rate and​ ______ the equilibrium quantity of labor.

increases; increases

An increase in labor productivity​ _______ potential GDP and​ ______ potential GDP per hour of labor.

increases; increases

Over the past 100​ years, growth was most rapid during the​ ______ and slowest during the​ ______.

1960s; Great Depression

Over the past 100​ years, the average growth rate of U.S. real GDP per person is __ percent.

2

An increase in the population​ ______ the real wage rate and​ ______ the equilibrium quantity of labor.

. ​decreases; increases

U.S. Workers​ World's Most Productive (Choose the correct statement.)

Changing the number of hours employed changes the level of​ productivity, but it does not change the growth of productivity.

The article defines productivity as​ ______. Real GDP per person is​ ______.

GDP divided by the number of people​ employed; real GDP divided by the population

Since​ 1980, the gap between the United States and​ _______.

Russia and between the United States and Nigeria​ narrowed, the gap between the United States and Mexico​ widened, and the gap between the United States and the Europe Big 4 remained relatively constant

Economic growth

The expansion of production possibilities—it is the outward movement of the PPF-not the return to full employment in an expansion phase of the business cycle.

The source of the growth slowdown was​ _______.

a combination of a slowdown in the growth of work hours and a slowdown in the growth of labor productivity

According to classical growth​ theory, the growth of real GDP per person stops when​ _______.

a population explosion eventually occurs and real GDP per person returns to the subsistence level

aggregate production function

a relationship that tells us how real GDP changes as the quantity of labor changes when all other influences on production remain the same.

In terms of real GDP per​ person, China is​ _______.

are greater​ than; 50 years behind Singapore

Labor market equilibrium occurs​ _______.

at the real wage rate at which the quantity of labor demanded equals the quantity of labor supplied.-the economy is at a​ full-employment equilibrium.

Longland​ ______ experience diminishing returns because​ ______.

does; as capital per hour of labor​ increases, real GDP per hour of labor increases but by smaller amounts

The preconditions for labor productivity growth are​ ______.

firms, markets, property​ rights, and money.

Neoclassical growth theory

he proposition that real GDP per person grows because technological change induces saving and investment that make capital per hour of labor grow.

The quantity of labor demanded is the number of labor hours​ _______ during a given period.

hired by all the firms in the​ economy

New growth theory

holds that real GDP per person grows because of the choices people make in the pursuit of profit and that growth will persist indefinitely.

Potential GDP​ ______ and potential GDP per hour of labor​ ______.

increases; decreases

The key proposition of new growth theory that makes growth persist is that​ ______ is not subject to diminishing returns.

knowledge capital

Workers in developing Asian economies who work more hours than Americans are not the​ world's most productive workers because​ ______.

productivity depends on how much real GDP each hour of labor can produce

labor productivity

quantity of real GDP produced by one hour of labor.

Real GDP per person

real GDP divided by the population.

The supply of labor is the relationship between the quantity of labor supplied and the​ ______.

real wage rate

The demand for labor is the relationship between the quantity of labor demanded and the​ ______.

real wage​ rate

According to neoclassical growth​ theory, the growth of real GDP per person stops when​ _______.

technology stops advancing

The increase in the growth rate of real GDP per person from 2.2 percent per year to 8.7 percent per year is a​ ______. The 11.3 percent increase in 2009 is a​ ______.

rise in​ China's economic growth​ rate; temporary cyclical expansion

According to neoclassical growth​ theory, the fundamental cause of economic growth is​ ______.

technological​ change, which induces saving and investment that make capital per hour of labor grow

The quantity of labor​ (aggregate labor​ hours) ______. And the percentage change in the quantity of labor was larger in the​ ______ sector.

​increased; nonfarm