Chapter 6: Economic Growth

Growth can persist indefinitely, according to the ______theory

new classical

Potential GDP is determined by ______

the full-employment quantity of labor.

The two broad sources of potential GDP growth are growth of ______and growth of _____.

the supply of labor; labor productivity

An increase in labor productivity increases potential GDP because

employment increases and a given amount of employement produces more real GDP

An increase in labor productivity increases potential GDP because ______.

employment increases and a given amount of employment produced more real GDP.

Over the past 100 years, the avg. growth rate of U.S. real GDP per person is _____. Growth was most rapid during the _____ and slowest during the ______.

2 percent; 1960s; Great Depression

T or F: Real GDP per person grows whenever real GDP grows.

FALSE

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

Knowledge capital

The economic growth rate is the annual percentage change of _____.

Real GDP

T or F: Real GDP per person equals real GDP divided by the population

TRUE

T or F: The standard of living depends on real GDP per person.

TRUE

Real GDP growth rate = [Real GDP in _______ - Real GDP in _______year) / Real GDP in _____] x 100

current year; previous year; previous year

An increase in the population ______the real wage rate and _____the equilibrium quantity of labor. Potential GDP ______ and potential GDP per hour of labor _______.

decreases; increases; increases; decreases

In neoclassical growth theory, _______.

growth will stop if technology stops advancing.

The quantity of labor DEMANDED is the number of labor hours _____during a given period. The quantity of labor SUPPLIED is the number of labor hours ______during a given period. The _____ adjusts to bring the labor market equilibrium.

hired by all the firms in the economy; that all the households in the economy plan to work; money wage rate

The aggregate production function is the relationship that tells us _______, when all other influences on production remain the same.

how real GDP changes as the quantity of labor changes

A problem with neoclassical growth theory is its

inability to explain persistent differences between countries' GDP growth rates.

An increase in labor productivity _____ the real wage rate and ______the equilibrium quantity of labor. Potential GDP_____ and potential GDP per hour of labor _____.

increases: increases; increases; increases

An increase in the population ______aggregate labor hours, ______ potential GDP, and ______the real wage rate.

increases; increases; lowers

Real GDP per person grows when ______.

real GDP grows at a FASTER RATE than the population grows.

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

real wage rate; real wage rate

Over the last several decades, the gap between real GDP per person in the U.S.and Europe Big 4_______. The gap between real GDP per person in the U.S. and Japan ______.

remained nearly constant or widened a small amount; narrowed

According to classical growth theory, when real GDP per person ______, the population grows.

rises above the subsistence level

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.