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 knowledge​capital?

Subsidies Public education Patents

Consider the figure to the right. Which of the following is responsible for the upward shifts in the​ per-worker production​function?

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 Prisca​Baresi, 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 of​theirs, 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 hour​worked? ​(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.