Deck 17: Long-Run Growth

Question 1

Explain the role of inventions and innovations in creating economic growth.

Answer 1

Inventions are advances in knowledge and innovations are the use of new knowledge to produce new products. Invention by itself will not generate economic growth. It takes invention combined with innovation to generate growth.

Question 2

Refer to the information provided in the figure below to answer the questions that follow.

Using the figure above, answer the following question. Identify three reasons that might cause the ppf to shift from ppf2 to ppf3?

Answer 2

There are many answers. But three possibilities would be technological progress, an increase in capital stock or an increase in the labor supply.

Question 3

Use the above graph to answer the following question. If the economy is operating at point D what would be an illustration of an increase in the labor force?

Answer 3

An increase in the labor force could be represented by a movement from point D to either point A or B.

Question 4

Define economic growth.

Question 5

What is modern economic growth?

Question 6

If the aggregate production function is Y = 5K^.5L^.5 . If there are 49 units of capital and 16 units of labor, calculate the aggregate output. Show your work.

Question 7

Answer the following questions by analyzing the following production possibilities frontier.
(a) Explain what is happening in the economy at Point A. How can the economy move to a point on ppf1?
(b) Why will producing investment goods today cause different results for the future of the economy than focusing more on consumer goods today?
(c) How would any nation move to higher and higher production possibilities frontiers? For example, moving from ppf1 to ppf2.

Question 8

In Polynomia, real GDP increased by 8% and the population increased by 3% in 2008. What can we say about economic growth and the standard of living for this country?

Question 9

Use the above graph to answer the following question. If the economy is operating at point D what would be an illustration of an increase in productivity?

Question 10

In order for economic growth to increase the standard of living what must be the relationship between the economic growth rate and the population growth rate?

Question 11

If the aggregate production function is Y = 2K.5L^.5 . If there are 225 units of capital and 196 units of labor, calculate the aggregate output. Show your work.

Question 12

Draw a graph illustrating economic growth using the production possibilities frontier. Label the horizontal axis "capital goods" and the vertical axis "consumer goods."

Question 13

Explain the "Catch-up" theory.

Question 14

Refer to the information provided in the figure below to answer the questions that follow.

Using the figure above, answer the following question. If the economy is currently at point C, explain with the use of the graph what would happen if there was an economic decline.

Question 15

If the capital stock remains fixed but the labor forces increases what is likely to be true about the productivity of this new labor?

Question 16

Identify and explain the two basic forms of capital?

Question 17

In Vidalia, real GDP increased by 6% and the population increased by 9% in 2008. What can we say about economic growth and the standard of living in this country?

Question 18

Refer to the information provided in the figure below to answer the questions that follow.

Using the figure above, answer the following question. If the economy is currently at point D explain with the use of the graph what would be an example of economic growth.

Question 19

Explain how an economy can grow without increases in the labor force and physical capital.

Question 20

Use the above graph to answer the following question. If the economy is operating at point C what would be an illustration of a decrease in labor productivity?

Question 21

It is well known that as countries develop, they typically generate air and water pollutants. China's recent rapid growth provides a strong example of this trend. However, what conclusions did Grossman and Krueger make concerning such cases?

Question 22

Identify the three main ingredients which may serve to increase GDP.

Question 23

What is a disembodied technological change? Provide an example.

Question 24

You have just been appointed to a special Presidential Task Force on Economic Growth. You are responsible for proposing three policies that the government can enact to increase the growth rate. What policies would you recommend and why?

Question 25

With the use of at least two examples show how disembodied technological change may actually have a negative consequence regarding the usual method of measuring output but a positive impact on total social welfare.

Question 26

What is an aggregate production function? What does it show? Given an example of an aggregate production function.

Question 27

Explain some of the reasons given for the productivity decline in the United States in the 1970s.

Question 28

Using the table above, compute the measured labor productivity and fill in the empty cells. What can you say about the returns to capital?

Question 29

Explain the difference between an invention and an innovation. Provide an example of an invention and an innovation.

Question 30

The output per worker at the XYZ Manufacturing Company has increased. What factors could have caused this increase?

Question 31

Define foreign direct investment.

Question 32

Identify three ways in which human capital can be produced.

Question 33

Explain how each of the following is related to the rates of productivity and economic growth in an economy:
(a) The level of investment spending
(b) The extent of government regulation
(c) The level of spending on research and development
(d) The saving rate

Question 34

Define labor productivity.

Question 35

What is embodied technological change? Provide an example.

Question 36

Explain how an increase in the stock of capital can increase output even if it is not accompanied by an increase in the labor force.

Question 37

Using the table above, compute the measured labor productivity and fill in the empty cells. Comment on whether the figures that you computed are what one would normally expect.

Question 38

Explain the three different ways an increase in GDP can come about.

Question 39

What is the aggregate production function?

Question 40

What did Thomas Malthus and David Ricardo believe was necessary to increase agricultural output.

Question 41

Identify and discuss two factors from which economies of scale arise.

Question 42

Related to the Economics in Practice on p. 329 [641]: How are U.S. firms looking to cut health care costs?

Question 43

Figure 32.1
Explain the shape of the inverted "U"-shaped function as depicted in Figure 32.1.

Question 44

Define consumer sovereignty.

Question 45

Explain some of the arguments on the "Pro-Growth" side of the growth debate.

Question 46

What is industrial policy? Explain why some economists believe the U.S. should adopt an industrial policy.

Question 47

Define external economies of scale.

Question 48

Discuss some of the controversy over immigration into the United States. From an economic growth standpoint, why is this so controversial?

Question 49

Define industrial policy. What are the arguments for and against industrial policy in the United States? Based on these arguments, do you feel that the government should pursue an industrial policy? Explain your answer in detail.

Question 50

If environmental pollution eventually declines as growth brings rising per-capita incomes, why should we be worried?

Question 51

Explain the four basic points of the anti-growth argument.

Question 52

List and discuss three tax laws which have been used to stimulate investment.

Question 53

List at least five policies that have either been suggested or have been enacted into law to increase the rate of economic growth in the United States.

Question 54

Explain why some economists argue that growth requires an unequal income distribution.

Question 55

Some critics argue that the income tax system and Social Security reduce saving. What suggestion do they offer to correct for the income tax system? What law was passed to allow earnings to accumulate without paying taxes? What were its provisions?

Question 56

Related to the Economics in Practice on p. 332 [644]: Why are productivity changes underreported?

Question 57

What was the prediction made by the Club of Rome in 1972? What factors intervened that thwarted their predictions?

Question 58

Compare and contrast an invention and an innovation.

Question 59

Edward Denison did a study on economic growth in the U.S. extending from 1929 to 1982. What were his two principle conclusions about where the growth came from?