Question 1

How have markets contributed to growth?

Accepted Answer

Markets have contributed to growth in two ways: specialization (the concentration of individuals on certain aspects of production)and division of labor (the splitting up of a task to allow for specialization of production).By taking advantage of specialization and the division of labor,people can trade with each other for what they do not produce,allowing the economy to expand.

Question 2

What is the new growth theory?

Accepted Answer

New growth theory is a theory that emphasizes the role of technology rather than capital in the growth process.

Question 3

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

Accepted Answer

Economic growth is an increase in the amount of goods and services an economy produces.Alternatively growth can be thought of as an increase in potential output - the highest amount of output an economy can produce from the existing production function and the existing resources.Economic growth could thus be thought of as an outward shift of the production possibilities curve.The growth in income improves lives by fulfilling basic needs and making more goods available to more people.The growth of living standards depends on the growth of per capita income,which can be calculated by subtracting the growth rate of the population from the growth rate of total output.

Question 4

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

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Question 5

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.

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Question 6

What are the five sources of growth?

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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?

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Question 8

Demonstrate graphically the impact of technological improvements on the production function and the production possibilities frontier.

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Question 9

Which country ishas experiencinged 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?

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Question 10

Explain the convergence hypothesis and give four reasons why convergence has not taken place for many poor countries.

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Question 11

Demonstrate graphically and explain verbally what would happen to output (according to the Classical growth model)if suddenly people need more food to subsist than was previously thought.

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Question 12

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?

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Question 13

List four categories (types)of policies designed to promote growth.

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Question 14

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

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Question 15

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

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Question 16

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

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Question 17

Explain the difference between diminishing marginal productivity and decreasing returns to scale.

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Question 18

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

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Question 19

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

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Question 20

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

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Exam 9: Growth,productivity,and the Wealth of Nations