Question 1

Explain how the labor market and the production function determine potential GDP.

Accepted Answer

The answer of Explain how the labor market and the...

Question 2

ʺWhy India Cannot Sustain High Economic Growthʺ, by Kunal KumarKundu
In his article about Indiaʹs prospects for growth, the author notes that ʺPer capita availability of food grain is falling as population is growing faster than food grain production. Deplorable rural infrastructure leads to India wasting an amount of food grain Indiaʹs agriculture is still so very
Highly monsoon dependent. ʺ
If the author is suggesting that Indiaʹs growth prospects are explained by the classical growth theory, we also expect that

Accepted Answer

The classical growth theory suggests that any increase in productivity or resources will eventually be offset by population growth, leading to a decline in labor productivity over time.

Question 3

Strategy to Address Dependence on Foreign Workers, Labour Market Demands
The prime minister of Malaysia announced his governmentʹs ʺimmediate focus would be to enhance skills development and improve the quality of education.ʺ By ʺthe constant upgrading of skills of the countryʹs workforceʺ he hoped to improve the countryʹs ʺglobal competitiveness and raise average incomes of workers.8 The long-run benefit of enhancing ʺskill development and improve. educationʺ is to

Accepted Answer

Enhancing skills development and improving the quality of education will lead to the development of a better-skilled labor force. A better-skilled labor force will lead to an increase in labor productivity which will ultimately speed up economic growth. Therefore, the long-run benefit of enhancing skill development and improving education is to speed economic growth.

Question 4

Cuba spends the highest percentage of GDP 18.7 percent) on education while the United States is the 38th highest spender with 5.7 percent of GDP. If spending on education is important for economic growth, which of the following statements explain why Cubaʹs economic growth rate is lower than the U.S. economic growth rate?
Data from United Nations Human Development
Programme)

Accepted Answer

The answer of Cuba spends the highest percentage of GDP...

Question 5

ʺPremier Liu Chao-shiuan announced Tuesday a government plan to distribute NT$82.9 billion US$2.51 billion) in consumption coupons to Taiwanʹs citizens in a bid to stimulate ... economic growth.ʺ

Accepted Answer

The answer of ʺPremier Liu Chao-shiuan announced Tuesday a government...

Question 6

Hu Tells Leaders China Growth Will Help World Economy
Chinese President Hu Jintao told world leaders that his country ʺhas taken an active part in the international cooperation to deal with the financial crisisʹʹ by providing a ʺ$586 billion economic stimulus, focused on building low-rent housing, roads, railways and airports. The package also allows tax deductions for fixed assets such as machinery to stimulate investment. Farmers will also benefit from more subsidies.ʺ
Hu stated that ʺChina is in itself an important contribution to international financial stability and world economic growth.ʹ
Which of the following will occur if Chinaʹs spending generates economic growth in real GDP per person?
i. There will be an upward shift in Chinaʹs aggregate production function.
ii. There will be a rightward shift in Chinaʹs labor demand curve.
iii. There will be an increase in the real wage.

Accepted Answer

When China's spending generates economic growth in real GDP per person, it implies an increase in productivity, which leads to an upward shift in China's aggregate production function (i). As firms expand production to meet the increasing demand, they will require more labor, which will lead to a rightward shift in China's labor demand curve (ii). As demand for labor increases, workers become scarce, and they can command higher wages, resulting in an increase in the real wage (iii). Therefore, all three options are correct.

Question 7

What is the real wage rate?

Accepted Answer

The answer of What is the real wage rate?...

Question 8

How has the U.S. growth experience compared to that of Central Europe and Africa? How has compared to the recent experience of Asian nations such as Hong Kong and Singapore.

Accepted Answer

The answer of How has the U.S. growth experience compared...

Question 9

According to UNESCO reporting, ʺGovernments in North America and Western Europe invested the highest shares of national resources in education: 5.6 percent of GDP.ʺ As a result, we would expect ,_________ all else held constant.

Accepted Answer

Higher investment in education is often associated with higher economic growth rates as it leads to an increased supply of skilled workers and technological advancements, which drive productivity and innovation. Therefore, we can expect higher economic growth rates in countries where governments invest a higher share of national resources in education.

Question 10

ʺIT Policy Can Spur Economic Growth, Industry Saysʺ
As staffers on Capitol Hill know all too well, the growth of technology has created an economy increasingly reliant on energy consumption, as BlackBerrys, laptops, and other devices become everyday necessities. The right policies, however, can make IT growth a part of the energy solution rather than the problem, IT representatives said Monday at a forum, in a congressional office, hosted by the Information Technology & Innovation Foundation.
Information technology could reduce the expected growth in carbon emissions by one third over 10 years, said Daniel Castro, a senior analyst with the ITIF.
Information and communication technology has ʺgreat promise in driving economic growth as well as reducing emissions,ʺ added David Isaacs, director of government affairs for
Hewlett-Packard, but ʺpolicy should drive these results.
In order to drive economic growth in real GDP per person, the changes in information technology that the article addresses must

Accepted Answer

The article states that information technology has the potential to drive economic growth and reduce emissions. Therefore, the changes in information technology mentioned in the article must increase labor productivity, as this would lead to an increase in output per worker and contribute to economic growth.

Question 11

What happens to the real wage rate and potential GDP if population increases?

Accepted Answer

The answer of What happens to the real wage rate...

Question 12

How has U.S. real GDP per person changed over the last 100 years?

Accepted Answer

The answer of How has U.S. real GDP per person...

Question 13

Discuss the aggregate production function. How does the aggregate production function relate to the labor market and potential GDP?

Accepted Answer

The answer of Discuss the aggregate production function. How does...

Question 14

Define the aggregate production function. Discuss why the aggregate production function exhibits diminishing returns.

Accepted Answer

The answer of Define the aggregate production function. Discuss why...

Question 15

How will an increase in physical capital affect labor productivity, labor demand, and potential GDP?

Accepted Answer

The answer of How will an increase in physical capital...

Question 16

What is the effect on real GDP per person if labor productivity increases?

Accepted Answer

The answer of What is the effect on real GDP...

Question 17

Briefly explain how growth in real GDP differs across economies including the United States, Japan, Africa, Central America, Hong Kong, Korea, and Singapore.

Accepted Answer

The answer of Briefly explain how growth in real GDP...

Question 18

With no change in labor productivity, what would happen to the real wage rate and potential GDP if the population increased?

Accepted Answer

The answer of With no change in labor productivity, what...

Question 19

Use the table below to answer this question. The data show national savings rates as a percentage of GDP; the growth rate of real GDP per person; and birth rates in 2006.
$$\begin{array} { | l | c | l | l | } 
\hline \text { Country } & \begin{array} { c } 
\text { National Saving } \
\text { (\% of GDP) }
\end{array} & \begin{array} { l } 
\text { Growth rate of } \
\text { real GDP per } \
\text { person }
\end{array} & \text { Birth Rate } \
\hline \text { Japan } & 28 & 1.6 & 9.96 \
\hline \text { Canada } & 24 & 2.6 & 11.4 \
\hline \text { Germany } & 23 & 1.9 & 9.35 \
\hline \text { U.S. } & 14 & 1.9 & 14.2 \
\hline
\end{array}$$
If the data support the neoclassical growth theory, we would expect to see

Accepted Answer

The neoclassical growth theory suggests that a higher saving rate leads to a higher capital stock, which in turn leads to a higher economic growth rate. Japan has the highest saving rate among the countries listed, so we would expect it to have the highest economic growth rate.

Question 20

Strategy to Address Dependence on Foreign Workers, Labour Market Demands
The prime minister of Malaysia announced his governmentʹs ʺimmediate focus would be to enhance skills development and improve the quality of education.ʺ By ʺthe constant upgrading of skills of the countryʹs workforceʺ he hoped to improve the countryʹs ʺglobal competitiveness and raise average incomes of workers.ʺ
The story describes

Accepted Answer

The prime minister's plan to enhance skills development and improve education indicates a focus on increasing human capital, rather than physical (choice A) or changes to the incentive system (choice C). The goal of improving global competitiveness and raising worker incomes also suggest a strategy to address the dependence on foreign workers and meet labour market demands, which is a consequence of economic growth (choice D), but not the primary focus of the plan.

Quiz 6: Economic Growth