ECO Chapter 9

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economic growth

The rate of economic growth is the annual rate of change in per capita real GDP. This measure of the rate of growth of a​ nation’s economy takes into account both its growth in overall production of goods and services and the growth rate of its population. It is an average measure that does not account for possible changes in the distribution of income or various welfare costs or benefits that may accompany growth of the economy.

Per Capita Real GDP

1)Real GDP in billions/ Population in millions = thousands 2) per capital real GDP 2016 = per capital real GDP 2015 x annual growth rate 3) real GDP 2016 = per capital real GDP 2016 x population 2016

What is economic​ growth?

Economic growth is increases in per capita real GDP measured by its rate of change per year.

Why are politicians and economists concerned about the economic growth rate in the​ U.S.?

Small differences in the rate of economic growth can make large differences in the standard of living over time.

Economic growth as it is currently measured

-does not account for how increased per capita income is distributed across income groups. -understates actual economic growth since it does not adjust for changes in leisure. -does not consider​ spiritual, cultural or social difficulties that may arise from growth. -All of the above

Real standards of living can only go up with positive economic growth.

False -Real standards of living can go up without any positive economic growth.

All of the following are benefits of economic growth except

urban congestion.

If the average annual rate of economic growth is 4​ percent, approximately how long will it take for the​ nation’s per capita real GDP to​ double?

17.5 years

Economic growth can be defined as the increase in
____ ______ real​ GDP, measured by its rate of change per year.

per capita

The ________ of economic growth are reductions in​ illiteracy, poverty, and illness and increases in life spans and political stability. The _______ of economic growth may include environmental​ pollution, alienation, and urban congestion.

benefits/ costs

Small​ percentage-point differences in growth rates lead to _______ differences in per capita real GDP over time.


Between the start of 20162016 and the start of 20172017​, a​ country’s economic growth rate was 4 percent. Its population did not change during the​ year, nor did its price level.

The rate of increase of the​ country’s nominal GDP during this​ one-year interval is 4% .

An​ economy’s rate of economic growth equals

rate of growth of capital plus rate of growth of labor plus rate of growth in the productivity of capital and labor.

Which of the following will increase labor​ productivity?

Labor has more physical capital to work with.

The rate of growth in the productivity of capital is 1​ percent, the rate of growth of capital is 2​ percent, the rate of growth of labor is 1​ percent, and the rate of growth in the productivity of labor is 3 percent. From this we know that

The rate of economic growth​ (7 percent) is found by combining rates of growth in​ growth-contributing factors​ (1 percent from​ labor, 3 percent from​ labor’s productivity, 2 percent from​ capital, and 1 percent from​ capital’s productivity).

Labor productivity is normally measured by

dividing total real domestic output by the number of workers or by the number of labor hours.

A country that saves a larger percentage of GDP than another country​ will, ceteris paribus

A country that saves a larger percentage of GDP than another country​ will, ceteris paribus

For economic growth to take​ place, a country must save.​ But, for saving to actually generate economic​ growth,

saving must be channeled into investment.

One of the most important factors for economic growth to take place is that a society must

consume less than they produce.

Which of the following statements is ​false?

A society that wants more in the future should consume more of its capital today.

Total capital is the sum of

physical capital and human capital.

On a national​ basis, higher saving rates eventually mean higher living standards in the long​ run, all other things held constant.


Improvements in _______ ​productivity, all other things being​ equal, lead to ________ economic growth and higher living standards.


One fundamental determinant of the rate of growth is the rate of _______. To have more consumption in the​ future, we have to _____ rather than consume. In​ general, countries that have had higher rates of
_______ have had higher rates of growth in per capita real GDP.


According to the new growth theory

knowledge about how to produce goods and services is an important source of economic growth.

New growth theory differs from traditional growth theory in that

traditional theory did not explain what causes improvements in​ technology, but new growth theory does.

The new growth theory argues that

technology must be considered a separate factor of production that is sensitive to economic incentives.

Economic growth is positively related to all of the following except

import tariffs.

There are predictions that computers may become as powerful as the human brain by 2030.


According to new growth​ theory, more technological advances will occur when the rewards are greater.


In the United​ States, a patent gives the inventor of a product the exclusive right to​ make, use, or sell the product for 50 years.

False -In the United​ States, a patent gives the inventor of a product the exclusive right to​ make, use, or sell the product for 20 years.

For every 1 percent increase in the stock of research and development in the United​ States, productivity in the rest of the world

increases by about 0.25 percent.

Nations with high tariff barriers have tended to have higher average annual rates of real GDP per capita growth since 1965.

False -Nations with high tariff barriers have tended to have lower average annual rates of real GDP per capita growth since 1965.

An innovation is the same thing as an invention.

False -Innovation involves the transformation of something​ new, such as an​ invention, into something that benefits the economy either by lowering production costs or by providing new goods and services.

According to economist Paul​ Romer, ideas are what drive economic growth.


The knowledge and skills that people in the workforce acquire through​ education, on-the-job​ training, and​ self-teaching is referred to as

human capital

The openness of a​ nation’s economy to international
________ seems to correlate with its rate of economic growth.


_______ ________theory argues that the greater the​ rewards, the more rapid the pace of technology. And greater rewards spur research and development.

New growth

Invention and innovation are not the same thing. ______ are useless until _______ transforms them into goods and services that people find valuable.


According to ________ ______ ​theory, economic growth can continue as long as we keep coming up with new ideas.

new growth

Increases in ___________ capital can lead to greater rates of economic growth. These come about by increased​ education, on-the-job​ training, and​ self-teaching.


Population growth generally

encourages technological progress that increases economic growth.

Limiting the immigration of highly educated professionals hurts U.S. economic growth because

both A and B -it restricts the supply of high human capital workers and the new ideas they could potentially generate. -it restricts the knowledge base of the workforce

According to new growth​ theorists, increased population growth rates can lead to faster economic growth because

the larger the market the more incentive there is to innovate.

According to Julian​ Simon,

legal and illegal immigrants have a positive effect on the welfare of American citizens.

Government enforced property rights are crucial to economic growth because they

-make the returns to​ risk-taking relatively more certain. -provide incentives for capital accumulation and entrepreneurial activity. -encourage people to save knowing their wealth will not be arbitrarily confiscated. All of the above.

Which of the following statements is not​ true?

Property rights encourage people to take fewer​ risks, making the economy more secure.

Entrepreneurship functions better when

a system of private property rights permits entrepreneurs to capture the rewards from their entrepreneurial activities.

In the absence of​ well-defined property​ rights, we would likely find

people with fewer incentives to take risks.

Population growth can have both a positive and a negative impact on economic growth.


In​ general, the more securely private property rights are​ assigned, the more capital accumulation there will be.


While some economists argue that population growth reduces __________ ​growth, others contend that the opposite is true. The latter economists consequently believe that immigration should be encouraged rather than discouraged.


​Well-defined and protected _______ rights are important for fostering entrepreneurship. In the absence of​ well-defined _______ rights, individuals have less incentive to take​ risks, and economic growth rates suffer.


The economic development of a country is dependent on all of the following except

promoting protectionist barriers.

The development of modern rich nations can be characterized by three​ stages:

agricultural​ stage, followed by manufacturing​ stage, and lastly the tertiary stage.

To encourage economic development a country should do all of the following except

limit the amount of imports allowed in to the country.

Developing countries should

focus on production based on comparative advantage.

The World Bank estimates that​ _______ of the​ world’s people live on less than​ $1.50 per day.

nearly 20 percent

As nations become​ richer, average family size increases.


The​ world’s population is growing at a rate of about

2 people per second.

For​ modern, rich​ nations, the three stages of development​ (in order of​ occurrence) are

agriculture, manufacturing, and services.

Which of the following factors are highly related to the pace of economic​ development?

-developing an educated population -establishing a system of property rights -limiting protectionism All of the above.

Although many people believe that population growth hinders economic​ development, there is little evidence to support that notion. What is clear is that economic development tends to lead to a reduction in the rate of _________ growth.


​Historically, there are three stages of economic​ development: the ______ stage, the ________ stage, and the
________ ​stage, when a large part of the workforce is employed in providing services.

agricultural, manufacturing, service sector

Although one theory of economic development holds that a sizable natural resource base is the key to a​ nation’s development, this fails to account for the importance of the human​ element: The _______ _________ must be capable of using a​ country’s natural resources.

working population

Fundamental factors contributing to the pace of economic development are a​ well-defined system of _______ ______, training and __________, allowing new generations of companies and industries to ________ older​ generations, and promoting an open economy by allowing ___________ _________.

property rights/ education/replace/international trade

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