QUESTIONS AND PROBLEMS

Check Your Understanding

Question 18.1

1. Although having abundant natural resources can be an advantage for a country, are they necessary to ensure economic growth and a prosperous economy?

Question 18.2

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

Question 18.3

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

Question 18.4

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

Question 18.5

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

Question 18.6

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

Apply the Concepts

Question 18.7

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?

Question 18.8

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

Question 18.9

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

Question 18.10

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?

Question 18.11

11. Energy independence has been a goal for many decades. But only in the past decade has the increased focus on renewable energy sources, such as solar, wind, and water, taken on greater significance. How does achieving energy independence contribute to labor productivity and economic growth?

Question 18.12

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

In the News

Question 18.13

13. The European Union faced many challenges in recent years, especially disparities in economic growth among member countries, to the point that citizens of the United Kingdom voted on whether they wished to remain in the EU or not. In 2015 average real GDP growth in the EU was 1.5%, while the top three fastest-growing members, the United Kingdom, Ireland, and Poland, achieved average growth of 3.3%. Is the effect of a 3.3% growth rate so different from that of 1.5%?

Question 18.14

14. Finland consistently ranks very high in global rankings of educational achievement in science and math. This was a result of a transformation in Finland’s public education system to one that focuses on small class sizes and highly trained teachers for primary and secondary education, which is considered a highly prestigious profession. At the college level, many countries fully subsidize college tuition, and in Saudi Arabia, the King Abdullah Scholarship Program offers to send its citizens to study at many of the world’s prestigious universities for free. Explain how government investment in education could pay for itself in the long run.

Solving Problems

WORK IT OUT | interactive activity

500

Question 18.15

15. In 2016 U.S. GDP was approximately $18 trillion, while India’s GDP was approximately $2.25 trillion. However, India is growing faster than the United States.

  1. If the U.S. economy grows at 3% per year, in what year will U.S. GDP double to $36 trillion? (Hint: Use the Rule of 70 to approximate the number of years needed for GDP to double.)

  2. If India’s economy grows at 7% per year, in what year will its GDP double to $4.5 trillion? In what year would India’s economy increase 16-fold to $36 trillion?

  3. If each country’s growth rate continues at the same rate, in what year would each country’s GDP reach $72 trillion?

Question 18.16

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?

USING THE NUMBERS

Question 18.17

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?

Question 18.18

18. According to By the Numbers, what is the range of life expectancies for the countries whose GDP per capita was less than $10,000 in 2015? 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?