Macroeconomics Exam 3 Chapter 20

If a nation grows at 3.5% per year, then the economy will double every (how many) years (70/3.5)?

20 years

labor is the resource most often used to measure productivity because it accounts for roughly (blank) percent of production costs.

70

China's investment and export-led economy has grown (blank) and is the fastest-growing major economy in the world.

70 times bigger

How is economic growth usually measured?

Economic growth is usually measured by the annual percent change in real output of goods and services per capita (real GDP per capita), reflecting the expansion of the economy over time.

Why is it easier for developing countries to grow faster than advanced ones?

First, they can adopt existing technology from developed countries. Second, developed economies may be subject to diminishing marginal returns to capital Third, population growth is higher in developing counties, leading to lower levels of per capita consumption for a given level of economic output.

Human capital

Human capital also includes improvements in health. Better health conditions allow workers to be more productive. It has been shown that improved health from better nutrition has a significant impact on long-run economic growth.

Some scholars believe that the importance of research and development (R&D) is understated. It can include

New products. Management improvements. Production innovations. Simply learning by doing.

Physical capital

Physical capital includes goods such as tools, machinery, and factories that have already been produced and are now producing other goods and services.

Nearly everyone agrees that these factors have contributed to economic growth in some or all countries.

Physical capital. Human capital. Natural resources. Technology.

What does productivity measure?

Productivity measures how efficiently resources are used.

What does property rights do?

Property rights give owners the legal right to keep or sell their properties—land, labor, or capital.

What can increase the economy's production capabilities?

Technology can increase the economy's production capabilities.

Malthus formulated a theoretical model that predicted that per capita economic growth would eventually become negative and that wages would ultimately reach equilibrium at a subsistence level, or just large enough to provide enough income to stay alive.

The Malthusian Prediction

The Rule of 70

The Rule of 70 can tell how long it will take a nation to double its output.

Malthus made three assumptions

The economy was agricultural, with goods produced by two inputs, land and labor. The supply of land was fixed. Human sexual desires worked to increase population.

Free trade can lead to greater output because of the principle of (blank).

comparative advantage

Investment alone does not guarantee (blank).

economic growth

what can raise the standard of living?

education

The global financial crisis had a larger impact on China than India because China's economy is more heavily reliant on (blank. (Blank) account for about one-third of China's GDP.

exports

If population were to expand faster than output, per capita output would (blank).

fall

the only way an economy can increase its rate of consumption in the long run is by (blank) the amount it produces.

increasing

Why are there vastly different standards of living around the world?

labor productivity

An increase in population, ceteris paribus, will (what) the standard of living because more people will be sharing a fixed real GDP.

lower

The "richest" or "most-developed" countries today have (blank) the per capita output of the "poorest" or "least-developed" countries.

many times

Abundant (blank) also can enhance output whereas a limited resource base is an important obstacle to economic growth.

natural resources

a nation's standard of living ultimately depends on its ability to (blank).

produce goods and services

technological change can shift the per-worker (blank), producing more output per worker with the same amount of capital per worker.

production curve upward

India has a highly educated English-speaking population and is a major exporter of (blank).

software services and software workers.

Most economists believe that it is the progress in (blank) that drives productivity.

technology

In rich countries, where workers already have large amounts of capital, increases in capital investment may have a very small additional effect on productivity. Economists call this

the catch-up effect.