Deck 9: Growth, Productivity, and the Wealth of Nations

Question 1

List and briefly describe the three types of capital.

Answer 1

Economists often think of three types of capital.(1) Physical capital: includes both private capital (buildings and machines) and public capital (infrastructure such as highways).(2) Human capital: the skills that are embodied in workers through experience, education, and on-the-job training.(3) Social capital: the habitual way of doing things that guides people in how they approach production.

Question 2

Economists treat potential output differently when considering the short run than when considering the long run.Explain this difference.

Answer 2

In the short run, economists consider potential output fixed and they focus on how to get the economy operating at potential output if it is not.In the long run, economists consider potential output to be changeable and focus on how to expand potential output.

Question 3

If investment in technology is similar to investment in capital, why does new growth theory separate the two?

Answer 3

The answer is twofold.First, increases in technology are not directly linked to investment as capital is.Second, increases in technology often have enormous positive spillover effects, especially if the new technology involves common knowledge and is freely available to all.

Question 4

While all agree that technology is important, no one is sure what are the best policies that promote technological growth.Explain why this statement is valid.

Question 5

Why is private property a source of growth?

Question 6

If you know the percent change in output, what additional information would you need to calculate per capita growth of output? Give an example.

Question 7

The dire prediction of economic growth based upon the Classical growth model has not been very accurate.What is this prediction and why hasn't it they come true?

Question 8

What is the Classical growth model? How is it different from new growth theory?

Question 9

What is the Classical growth model? Explain how, according to this model, saving plays a key role in growth.

Question 10

What is Say's Law? What is the reasoning behind it?

Question 11

Would returns to basic education (in terms of increased output) be greater in developed or developing countries? Explain.

Question 12

Economists once viewed capital accumulation as the key element to economic growth.Why is this no longer the case?

Question 13

What is the new growth theory?

Question 14

Saving and investment are often viewed as among the sources of economic growth.Why are saving and investment more of a challenge in developing countries than in developed countries?

Question 15

How have markets contributed to growth?

Question 16

What is economic growth? How does it relate to the production possibilities curve model?

Question 17

What is economic growth and how does it relate to living standards?

Question 18

One of the predictions of the Classical growth model is that the long-run growth in per capita output disappears due to diminishing marginal productivity of labor and capital.Real world experiences suggest otherwise.Explain why.

Question 19

What is median income? Why is it a better measurement of living standards than per capita output?

Question 20

List some examples of policies to create institutions that encourage technological innovation.

Question 21

Explain how free trade among nations is beneficial for economic growth.

Question 22

Which country is experiencing higher growth per capita? Country A whose economy is growing at a 9 percent rate and whose population is growing at a 7 percent rate or country B whose economy is growing at a 2 percent rate and whose population is declining at a 1 percent rate?

Question 23

Country A has economic growth of 1.5% per year while country B has economic growth of 2.5% per year.How long will it take for income to double in each country?