Questions and Problems

Check Your Understanding

1. Question

   Although abundant natural resources can be a blessing to a country, are they necessary to ensure economic growth and a prosperous economy?

   Prob 18 1. Although abundant natural resources can be a blessing to a country, are they necessary to ensure economic growth and a prosperous economy?

2. Question

   Why does a small difference in the economic growth rate lead to big differences over time?

   Prob 18 2. Why does a small difference in the economic growth rate lead to big differences over time?

3. Question

   What are some ways in which countries can improve labor productivity?

   Prob 18 3. What are some ways in which countries can improve labor productivity?

4. Question

   In what ways do governments help to build technology and ideas?

   Prob 18 4. In what ways do governments help to build technology and ideas?

5. Question

   Why is investment in human capital good for both individuals and fostering economic growth for the economy as a whole?

   Prob 18 5. Why is investment in human capital good for both individuals and fostering economic growth for the economy as a whole?

6. Question

   Why is a stable financial system important to economic growth?

   Prob 18 6. Why is a stable financial system important to economic growth?

Apply the Concepts

7. Question

   The standard of living we enjoy today is largely due to the investments of earlier generations of Americans. Do you agree? Why or why not?

   Prob 18 7.The standard of living we enjoy today is largely due to the investments of earlier generations of Americans. Do you agree? Why or why not?

8. Question

   What role might foreign investment play in helping developing nations improve their growth rate and increase income levels?

   Prob 18 8.What role might foreign investment play in helping developing nations improve their growth rate and increase income levels?

9. Question

   Higher levels of savings and investment lead to greater rates of economic growth. What can government do to encourage more savings and investment?

   Prob 18 9.Higher levels of savings and investment lead to greater rates of economic growth. What can government do to encourage more savings and investment?

10. Question

    Per capita income (or output) is the general measure used to compare the standards of living between countries. If a country’s population growth is higher than its economic growth, what happens to per capita income? What are some of the limitations to using per capita income as a measure to compare the well-being of different countries?

    Prob 18 10.Per capita income (or output) is the general measure used to compare the standards of living between countries. If a country’s population growth is higher than its economic growth, what happens to per capita income? What are some of the limitations to using per capita income as a measure to compare the well-being of different countries?

11. Question

    In 1988, Nobel Prize–winner Robert Lucas suggested that differences in growth rates between Egypt and India raise the most fundamental economic question of what causes economic growth. What makes this issue of growth so important? Is a long-term growth rate of 1.4% so different from one of 3.4%?

    Prob 18 11.In 1988, Nobel Prize–winner Robert Lucas suggested that differences in growth rates between Egypt and India raise the most fundamental economic question of what causes economic growth. What makes this issue of growth so important? Is a long-term growth rate of 1.4% so different from one of 3.4%?

12. Question

    One of the potential negative consequences of both economic and population growth is that we will eventually exhaust the Earth’s natural resources, leading to our demise. What kind of activities might prevent this from happening?

    Prob 18 12.One of the potential negative consequences of both economic and population growth is that we will eventually exhaust the Earth’s natural resources, leading to our demise. What kind of activities might prevent this from happening?

In the News

13. Question

    Severe budget cuts at the federal and state level caused Education Secretary Arne Duncan to warn Congress about the long-term effects of education cuts on global competitiveness and economic growth (“Duncan Warns Congress on Impact of ‘Sequestration’ on Education Programs,” Washington Post, February 14, 2013). In 2013, nearly two-thirds of states still spent less money on education per student than in 2008; meanwhile, countries in Europe and Asia have increased spending on education despite the economic downturn. If the reduction in education spending in the United States does in fact slow economic growth, explain why the effects of the slower growth will be felt much more by your grandchildren than by you today.

    Prob 18 13.Severe budget cuts at the federal and state level caused Education Secretary Arne Duncan to warn Congress about the long-term effects of education cuts on global competitiveness and economic growth (“Duncan Warns Congress on Impact of ‘Sequestration’ on Education Programs,” Washington Post, February 14, 2013). In 2013, nearly two-thirds of states still spent less money on education per student than in 2008; meanwhile, countries in Europe and Asia have increased spending on education despite the economic downturn. If the reduction in education spending in the United States does in fact slow economic growth, explain why the effects of the slower growth will be felt much more by your grandchildren than by you today.

14. Question

    Energy independence has been a goal for each of the presidential administrations since Richard Nixon in the 1970s (“U.S. Inches Toward Goal of Energy Independence,” The New York Times, March 22, 2012). But the increased focus on alternative energy sources, such as natural gas, wind, water, and solar, along with greater emphasis on fuel-saving technology (hybrid and plug-in cars) has only taken on greater significance in the last decade. How does achieving energy independence contribute to labor productivity and economic growth?

    Prob 18 14.Energy independence has been a goal for each of the presidential administrations since Richard Nixon in the 1970s (“U.S. Inches Toward Goal of Energy Independence,” The New York Times, March 22, 2012). But the increased focus on alternative energy sources, such as natural gas, wind, water, and solar, along with greater emphasis on fuel-saving technology (hybrid and plug-in cars) has only taken on greater significance in the last decade. How does achieving energy independence contribute to labor productivity and economic growth?

Solving Problems

15. Question

    Suppose you receive a stock tip that allows you to earn a 14% annual return. At this constant rate, about how long will it take to double your money using the Rule of 70?

    Prob 18 15.Suppose you receive a stock tip that allows you to earn a 14% annual return. At this constant rate, about how long will it take to double your money using the Rule of 70?

16. Question

    Suppose a new colony is created on the moon with the following production function: output = A × (L + K + H + N). If L, K, H, and N each equal 5, and technology (A) equals 3, how much output would this new colony produce?

    Prob 18 16.Suppose a new colony is created on the moon with the following production function: output = A × (L + K + H + N). If L, K, H, and N each equal 5, and technology (A) equals 3, how much output would this new colony produce?

17. Question

    According to By the Numbers, approximately how many years did it take for real GDP per capita in the United States to double from $5,000 to $10,000? How about from $25,000 to $50,000? During which period was economic growth stronger in terms of annual growth?

    Prob 18 17.According to By the Numbers, approximately how many years did it take for real GDP per capita in the United States to double from $5,000 to $10,000? How about from $25,000 to $50,000? During which period was economic growth stronger in terms of annual growth?

18. Question

    According to By the Numbers, what is the range of life expectancies for the countries whose GDP per capita was less than $5,000 in 2012? Compare these life expectancies with those with GDP per capita greater than $35,000. Is there a strong correlation between GDP per capita and life expectancy?

    Prob 18 18.According to By the Numbers, what is the range of life expectancies for the countries whose GDP per capita was less than $5,000 in 2012? Compare these life expectancies with those with GDP per capita greater than $35,000. Is there a strong correlation between GDP per capita and life expectancy?