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Krugman/Wells

Long-Run Economic Growth

9

CHECK YOUR UNDERSTANDING

Check Your Understanding 9-1Questions 1-3

1) Which of the following do economists use to measure economic progress?

1. real GDP

2. nominal GDP

3. real GDP per capita

4. nominal GDP per capita

2) Real GDP per capita in India has increased at an average annual rate of 4.1% between 1980 and 2007. Applying the rule of 70 it will take India ____ years to double its real GDP per capita.

1. 9.2

2. 77.6

3. 5.3

4. 17.1

3) China and India have growth rates much higher than the U.S. but they are poorer than the typical U.S. household because India and China have high tax rates.

1. True

2. False

Check Your Understanding 9-2Question 1

1a) Technological progress causes a(n) ________ in the rate of productivity, assuming that physical and human capital are unchanged.

1. increase

2. decrease

1b) What effect does an increase in physical capital per worker have on the rate of productivity, if human capital per worker and technology are unchanged?

1. There is a negative growth rate of productivity.

2. There is a decrease in the growth rate of productivity, but it remains positive.

3. There is an increase in the growth rate of productivity.

4. The effect is unknown.

Check Your Understanding 9-2Question 2

The economy of Erewhon has grown 3% per year overthe past 30 years. The labor force has grown at 1% peryear, and the quantity of physical capital has grown at 4%per year. The average education level hasn’t changed. Estimates by economists say that each 1% increase inphysical capital per worker, other things equal, raisesproductivity by 0.3%.

2a) The economy of Erewhon has grown 3% per year over the past 30 years. The labor force grew at 1% and physical capital grew at 4%. A 1% increase in physical capital per worker raises productivity by 0.3%. How fast has productivity in Erewhon grown?

1. 4%

2. 3%

3. 2%

4. 1%

2b) The economy of Erewhon has grown 3% per year over the past 30 years. The labor force grew at 1% and physical capital grew at 4%. A 1% increase in physical capital per worker raises productivity by 0.3%. How fast has physical capital per worker grown?

1. 4%

2. 3%

3. 2%

4. 1%

2c) The economy of Erewhon has grown 3% per year over the past 30 years. The labor force grew at 1% and physical capital grew at 4%. A 1% increase in physical capital per worker raises productivity by 0.3%. How much has growing physical capital per worker contributed to productivity growth?

1. 1.2%

2. 1%

3. 0.9%

4. 0.3%

2d) The economy of Erewhon has grown 3% per year over the past 30 years. The labor force grew at 1% and physical capital grew at 4%. A 1% increase in physical capital per worker raises productivity by 0.3%. How much has technological progress contributed to productivity growth?

1. 1.2%

2. 1.1%

3. 0.9%

4. 0.3%

Check Your Understanding 9-2Question 3

3. Multinomics, Inc., is a large company with many offices around the country. It has just adopted a new computer system that will affect virtually every function performed within the company.

1. increase; increase

2. increase; decrease

3. decrease; decrease

4. decrease; increase

This will most likely _____ productivity in the short term and _____ productivity in the long term.

Check Your Understanding 9-3Questions 1-3

1) Countries with low rates of domestic savings usually have the highest growth rates.

1. True

2. False

2) U.S. centers of academic biotechnology research have closer connections with private biotechnology companies than their European counterparts. What effect might this have on the pace of creation and development of new drugs in the United States versus Europe?

1. This will increase the pace of the creation and development of new drugs in the US.

2. This will decrease the pace of the creation and development of new drugs in the U.S.

3. There will be no effect.

3) During the 1990s in the former U.S.S.R., a lot of property was seized and controlled by those in power. How might this have affected the country’s growth rate?

1. This would have increased the country’s growth rate.

2. This would have decreased the country’s growth rate.

3. This would not have affected the country’s growth rate.

Check Your Understanding 9-4Questions 1-3

1) It is impossible for the Asian economies to sustain their recent high rates of productivity growth.

1. True

2. False

2) What does the graph below indicate about the importance of a high standard of living today as a predictor of the future growth rate?

1. It indicates that the standard of living today is not as important as other factors.

2. It indicates that it is the best predictor of future growth.

3) A policy that provides funding for basic infrastructure in Africa is the only factor needed for Africa to achieve economic growth.

1. True

2. False

Check Your Understanding 9-5Questions 1 and 2

1) Economists are more concerned about the limits to growth imposed by resource scarcity more than those imposed by environmental degradation.

1. True

2. False

2a) Economic growth results in increased greenhouse gas emissions and reducing those emissions would severely limit economic growth.

1. True

2. False

2b) Both rich countries and emerging countries are willing to share the costs of reducing greenhouse emissions.

1. True

2. False