Macroeconomics Ch 27

Why hasn't Thomas Malthus's prediction come true?

Because labor has become more efficient as a result of education and technological progress, output per worker has increased.

Outline some of the benefits and costs to society when it experiences growth.

Benefits: Higher income, higher employment, and a higher standard of living. Costs: Pollution, resource exhaustion, and destruction of natural habitat.

Macroeconomics emerged as a separate subject largely in response to:

John M. Keynes's explanation of business cycles.

Which economist who stressed the importance of the entrepreneur in economic growth?

Joseph Schumpeter.

What are network externalities and how do they lead to growth?

Network externalities are externalities in which the use of a good by one individual makes that technology more valuable to other people. Network externalities can make switching to a superior technology expensive or nearly impossible.

Name three types of capital.

Physical capital Human capital Social capital

What effect would we expect in the market for loanable funds if people increase their saving?

Supply will shift right and demand will not change.

New growth theory emphasizes the importance of increases in what factor in explaining growth?

Technology

On what law of production did Thomas Malthus base his prediction that population growth would exceed growth in goods and services?

The law of diminishing marginal productivity

Adam Smith stressed specialization and division of labor as causes of economic growth.

True

Other things equal, according to the Classical growth model, if Malaysia saves more than Thailand, Malaysia should grow faster than Thailand.

True

Small differences in economic growth rates can eventually produce large differences in living standards because of compounding.

True

A positive externality is the positive effect that:

an action has on others that is not taken into account by the decision maker.

The study of economic growth focuses on the factors that cause:

an economy's production possibility curve to shift out.

Market economies have been successful in leading to economic growth because they have:

channeled individual efforts toward production and growth.

One reason why the Soviet Union grew slowly in the 20th century compared to the United States and Western Europe was that it:

did not provide incentives for individuals to produce what consumers valued.

Historically economic growth through the market has:

helped both rich and poor.

In the early 2000s, analysts feared that low academic achievement in math in the United States may reduce U.S. economic growth by as much as half a percentage point per year. In terms of factors leading to growth, the low math scores indicate that the U.S. may be at a growing disadvantage in terms of:

human capital.

Say's Law allows growth theorists to:

ignore aggregate demand and focus only on aggregate supply.

Robert Lucas reflects the view of many economists when he argues that the most effective way to reduce world poverty is to:

increase long-run growth.

The law of diminishing marginal productivity implies that opportunity cost:

increases as one input is increased to produce successive units of output.

The law of diminishing marginal productivity implies that increasing only one input will:

lead to smaller and smaller increases in output.

The growth produced by markets:

makes the average person better off but may worsen the distribution of income.

The effect of specialization and the division of labor is to make us:

more productive and more dependent on others.

Per capita growth:

occurs when there is an increase in goods and services per person.

The most important policy implication of the Classical growth model is that:

policies to stimulate saving and investment will stimulate economic growth.

According to the Classical growth model, an economy that increases its saving will grow:

quickly since the increase in saving will permit greater investment.

According to Say's Law, people:

supply goods in order to obtain other goods.

Financial markets are a key institution of growth because:

they move funds from those who save to those who invest.