Economics Chapter 28 - Economic Growth

If GDP is $20 trillion, how many years will it take for GDP to increase to $160 trillion if annual growth is 10 percent?

21 years

Suppose an economy's real GDP is $30,000 in year 1 and $31,200 in year 2. What is the growth rate of its real GDP?

4% [($31,200 − $30,000)/$30,000 × 100]

Increasing productivity leads to improved standards of living by increasing

real hourly earnings

The percentage of U.S. adults with a high school education has

risen from 44 percent in 1960 to 91 percent in 2020.

Sources of funds for investment spending in plant and equipment are

savings by households, governments, and foreigners

A piece of software that benefits many users at the same time would be an example of

simultaneous consumption.

What is the largest contributor to productivity growth?

technological advancement

The core element of the productivity speedup between 1995 and 2010 was an explosion of entrepreneurship and innovations based on what?

the microprocessor

Compared with the period from 1973 to 1995, the annual rate of productivity growth from 1995 to 2010 was about

2 times faster.

Which of the following are growth-promoting institutional structures?

Efficient financial institutions Competitive market system. Patents and copyrights Free trade Strong property rights

Other than a higher standard of living and more innovations, which of the following are true of the impacts of modern economic growth in industrialized nations?

Elimination of archaic social norms Increase in democracies Increased leisure time and arts

An economy must achieve economic efficiency as well as full __________ to reach its full production.

Employment

True or false: Countries that experienced economic growth earlier than other countries have lower average incomes today.

FALSE *The countries that experienced economic growth early have much higher standards of living.

Strong property rights, ______ trade, patents and ______ market systems are all growth-promoting institutional structures.

FREE trade, patents, and COMPETITIVE market systems...

Select from the following those that contributed to the spectacular advancement in information technology.

Fiber-optic cable Wireless technology The computer The Internet

The six "determinants" of economic growth are grouped into three categories: one demand factor, four ________ factors, and one efficiency factor.

Four SUPPLY factors.

An economy that is experiencing economic ______ is better able to meet people's wants and resolve socioeconomic problems.

GROWTH

Which of the following explanations is consistent with the decline in productivity growth that followed the Great Recession?

High levels of debt incurred prior to the Great Recession have hindered firms' ability to make productivity-enhancing

Rising real wages for women in the U.S. workforce since the 1960s have what?

Increased the opportunity cost of staying at home.

What are the two supply-side elements of real GDP?

Increases in hours worked Increases in labor productivity

Identify the supply factors that are "determinants" of economic growth.

Increases in the quantity and quality of human resources Increases in the quantity and quality of natural resources Improvements in technology Increases in the supply of capital goods

A situation in which a given percentage increase in the amount of inputs a firm uses leads to an even larger percentage increase in the amount of output the firm produces is called what?

Increasing Returns

Examples that inhibit growth:

Increasing corruption allows government officials to steal people's homes A court order shuts down all banks permanently

What term describes the situation in which a given percentage increase in the amount of inputs a firm uses leads to an even larger percentage increase in the amount of output the firm produces?

Increasing returns

There is such a close relationship between changes in a nation's rate of productivity growth and changes in its average real hourly wage because if the average real hourly wage and output per worker is what?

Increasing, then the amount of output available per capita for workers to buy will be growing so more can be purchased

Computers, fiber-optic cable, wireless technology, and the Internet represent advances in a special type of technology known as what?

Information technology

Which of these explain why growth is an important economic goal?

It increases a society's ability to resolve socioeconomic problems. It increases real wages and incomes. It increases standards of living.

Technological advance is generated by the discovery of new ________ which allows resources to be combined in improved ways that increase output.

Knowledge/Techniques

Countries that develop and use the most advanced technologies, which then became available to follower countries, are known as ___________ countries.

LEADER

The two main supply-side elements that contribute to changes in real GDP are increases in hours worked and increases in what?

Labor productivity

The fraction of the working-age population that is in the labor force is called the ______ rate.

Labor-force participation

What do antigrowth economists cite as evidence in favor of their argument that growth is undesirable?

Materialism Pollution Poverty

Factors that contributed to the higher U.S. labor-productivity growth in 1995-2010 relative to the earlier period include what?

Microchip and information technologies. New start-up firms and increasing returns. Global competition. NOT Population growth.

Identify the sources of increasing returns for firms.

Network effects Simultaneous consumption Learning by doing Spreading of development costs More specialized inputs

Economists pay attention to small changes in economic growth because small changes in economic growth can make a big difference in the living __________ of a country.

STANDARDS

Ideally, a nation acquires funds for investment spending on plant and equipment by ______ income.

Saving

What are sources of increasing returns?

Simultaneous consumption which allows large numbers of customers to be served at the same time Spreading of development costs over greater output Learning by doing which reduces the time to perform tasks Network effects which increase the value of the product to each user as the total number of users rises More specialized inputs such as specialized workers and inventory management systems

A new firm focused on creating and introducing a particular new product or employing a new production or distribution method is called what?

Startup Firm.

Because people will not invest if they believe that thieves, bandits, or a rapacious and tyrannical government will steal their investments or their expected returns, ______ are important.

Strong property rights

Stronger ______ growth and heightened ______ competition allow the economy to achieve a greater rate of economic growth.

Stronger PRODUCTIVITY growth and heightened GLOBAL competition.

Which of the following allow the economy to achieve a higher rate of economic growth?

Stronger productivity growth and heightened global competition

The determinants that directly affect economic growth can be grouped into which of the following categories?

Supply Efficiency Demand

True or False? Actual output can fluctuate above and below potential output. Potential output follows a fairly smooth path, growing gradually with labor force, capital stock, and efficiency.

TRUE

True or False? An antigrowth view would be that there may be a significant tradeoff between productivity and the quality of life.

TRUE

True or False? In the U.S. economic-growth experience, most capital is complementary to labor.

TRUE

True or False? One major economic benefit of global competition is pressure to innovate.

TRUE

True or false: Growth enables society to improve nations' infrastructure.

TRUE *Growth leads to more investment and infrastructure.

The supply factors that are part of the "determinants" of economic growth include increasing the quality and quantity of natural and human resources, increasing the stock of capital, and improvements in what?

Technology

Which of the following helps explain why the growth rate in the United States has been positive during the 1900s?

The increase in labor productivity

Other things equal, which of the following would increase labor productivity the most?

The increase in the stock of real capital exceeds the increase in inputs of labor.

Why do economists pay so much attention to small changes in the rate of economic growth?

These changes have large effects on the volume of output.

Labor vs. Capital

Workers/labors vs. Businesses. Human workers - the doctor, teacher, and stockbroker - are considered "Labor". Structures, machines, and vehicles that are used to produce an ongoing stream of output - the oven in the restaurant, the movie theater, and the airliner - are considered "Capital"

The fraction of the ______ population that is in the labor force is called the labor-force participation rate.

Working-age

The dramatic slowdown in productivity growth experienced after the Great Recession

is still debated among many economists as to whether it represents a permanent shift in the economy.

A cost of economic growth is

it has not solved sociological problems such as poverty, homelessness, and discrimination.

What is human capital?

knowledge and skills that make a worker productive

An increase in productivity growth is important because real output, real income and real wages are linked to

labor productivity

In 1820, living standards in various places around the globe were _________ they are today.

less widely varying than

An increase in a nation's capital per worker ratio will tend to increase its what?

output per worker

REAL GDP =

(labor input * labor productivity)

When firms divide high product development costs over greater output, they are...

... spreading development costs

The efficiency factor involves both productive and allocative efficiency, which means in order to reach its full production potential an economy must...

... use its resources in the least costly way to produce the specific mix of goods that maximizes people's well-being

The annual growth of U.S. labor productivity...

... was greater between 1995 and 2010 than between 1973 and 1995.

The demand factor involves households, businesses, and government purchasing the economy's expanding output of goods and services so that there will be...

...no unplanned increase in inventories and resources will remain fully employed.

The 1995-2010 increase in the trend rate of productivity growth has been:

1. positively influenced by information technology because it connects information in all parts of the world with information seekers. 2. positively influenced by information economies of scale because expanding production has a very low marginal cost. 3. positively influenced by network effects, which is a type of scale economy. 4. positively influenced by global competition, which has expanded market possibilities for both consumers and producers.

Suppose an economy's real GDP is $30,000 in year 1 and $31,200 in year 2. Assume that the population is 100 in year 1 and 102 in year 2. What is the growth rate of real GDP per capita?

1.96 Real GDP per capita year 1 = $30,000/100 = $300. Real GDP per capita year 2 = $31,200/102 = $305.88. Thus, the growth rate of the economy's real GDP per capita equals 1.96 percent = [($305.88 − $300)/$300 × 100]

Suppose a country's real GDP is $16 trillion and the population is 400 million. What is this country's real GDP per capita?

16 trillion/400 million = $40,000

Assume that a leader country has real GDP per capita of $80,000, whereas a follower country has real GDP per capita of $40,000. Next suppose that the growth of real GDP per capita falls to zero percent in the leader country and rises to 10 percent in the follower country. If these rates continue for long periods of time, how many years will it take for the follower country to catch up to the living standard of the leader country?

7 years. 70/10 = 7 years *(Rule of 70 because $80,000 is double $40,000)

What annual growth rate is needed for a country to double its output in each of the following cases? 7 years 35 years 70 years 140 years

70/7 = 10% 70/35 = 2% 70/7 = 1% 140/7 = 0.5%

About what percentage of the growth in real output in the United States from 2007 to 2019 was due to increases in labor productivity?

82%

What examples will boost potential output?

A large number of parents returning to work after several years at home with kids Telecom companies investing in more fiber-optic cable capacity The use of computers to allow delivery trucks and drivers to deliver more packages per day **A surge in the stock market, a cut in taxes, or a rise in unemployment may affect actual output, but will not affect potential output since these don't change the Labor Force, Capital Stock, or efficiency.

Examples that promote growth:

A nation introduces patent laws for the first time A poor country extends free public schooling from 8 years to 12 years A nation adopts a free-trade policy A formerly communist country adopts free markets

What two things are used by economists to define and measure economic growth?

An increase in real GDP occurring over some time period An increase in real GDP per capita occurring over some time period

Economists define and measure economic growth as what?

An increase in real GDP per capita over some period of time

What would not be expected to increase labor productivity?

An increase in the size of the labor force

Leader Countries

As it relates to economic growth, countries that develop and use the most advanced technologies, which then become available to follower countries.

Modern economic growth has significantly increased the standard of living as well as _________ , social, and political arrangements.

CULTURAL

Labor productivity can only increase if what?

Capital increases faster than labor

Measured productivity growth for the United States declined following the Great Recession. Which of the following explanations for that phenomenon suggests that measured productivity has failed to account for actual gains?

Creation of new products that are essentially free to consumers

Which is the best definition of labor productivity?

Real output per hour of work

Increasing returns in production imply the what?

Decreasing per-unit production costs. Economies of scale. An increase in the productivity of inputs. NOT Increasing labor-requirements per unit of output.

The purchase of the economy's expanding goods and services by households, businesses, and the government is known as the ______ factor.

Demand

Rule of 70

Doubling time (in years) = 70/(percentage growth rate).

Suppose that just by doubling the amount of output that it produces each year, a firm's per-unit production costs fall by 30 percent. This result is an example of:

Economies of Scale

Which of the following are some possible reasons for the slowdown in productivity growth rates starting in 2010?

Overcapacity Recent products like Internet apps that are free and do not generate a measurable effect on GDP Accumulation of high debt levels

________ and ___________ give a strong financial incentive to inventors and authors to invent and create.

Patents and Copyrights.

What is the growth-promoting institutional structure that involves giving inventors and authors the exclusive right to market and sell their creations?

Patents and copyright system

The growth-promoting institutional structure that involves the ability of citizens to own land, houses and businesses is called private ________ rights.

Property

Which of the following are arguments against rapid economic growth?

Rapid economic growth is unsustainable due to the earth's finite resources. Rapid economic growth results in pollution, global warming and other environmental problems. Rapid economic growth has not solved sociological problems like poverty and homelessness.

What statement(s) best summarizes the growth in real GDP in the United States between 1950 and 2021?

Real GDP rose more than eightfold. OR Real GDP per capita rose almost fourfold.

Suppose that work hours in New Zombie are 300 in year 1, and productivity is $14 per hour worked. a. What is New Zombie's real GDP? b. If work hours increase to 320 in year 2 and productivity rises to $16 per hour, what is New Zombie's rate of economic growth?

a. $4,200 = 300 * 14 b. 21.90% = 320 * 16 = $5,120 [(5120-4200)/4200] x 100

Labor productivity significantly rises as the firm sells more units of a product, consequently resulting in lower per-unit cost of production because workers

can specialize and the firm can spread product costs over greater output

What is the potential result of overcapacity and the stalling of technological progress?

decline in productivity growth rates

What term describes reductions in per-unit production costs that result from increases in output levels?

economies of scale

What does economic growth provides society?

greater material abundance more goods and services higher living standards

The benefits of economic growth, particularly as measured by real GDP per capita, include

higher living standards for the vast majority of people.

The movement of workers from lower productivity jobs to higher productivity jobs would be an example of a(n)

improved resource allocation.

A nation's economic growth from one year to the next depends on its what?

increase in labor inputs and increase in labor productivity

The shift of labor out of agriculture and into industry in the United States has tended to

increase labor productivity.

Historically, the total amount of capital per worker in the United States has

increased significantly and made labor more productive.