Chapter 10

Question 2

What is growth in the context of economics?

Answer 2

Growth is the steady increase in aggregate output over time, focusing on the long-term determination of output.

Question 3

What is the shift in focus in economics when transitioning from economic fluctuations to growth?

Answer 3

The shift is from economic fluctuations and the determination of output in the short and medium run to growth and the determination of output in the long run.

Question 4

Why do we care about economic growth?

Answer 4

We care about economic growth because it directly affects the standard of living.

Question 5

What variable is compared over time or across countries to assess the standard of living?

Answer 5

Output per person is the variable compared over time or across countries to assess the standard of living.

Question 6

How do we correct for variations in exchange rates and price differences when comparing the standard of living across countries?

Answer 6

We use purchasing power parity (PPP) numbers to adjust for variations in exchange rates and price differences when comparing the standard of living across countries.

Question 7

What is the significance of using PPP numbers when comparing rich and poor countries?

Answer 7

When comparing rich and poor countries, PPP numbers are important because they provide a more accurate comparison by considering the differences in purchasing power, which can be significant when comparing GDP per person.

Question 8

What is the appropriate measure of economic production on the production side?

Answer 8

The appropriate measure on the production side is output per worker or output per hour worked.

Question 9

hat is the term used to describe the significant increase in output per person over time?

Answer 9

This significant increase in output per person over time is sometimes called the “force of compounding.”

Question 10

What is the trend within countries that has been visible in the Growth Rate of GDP Per Person since 1950 versus GDP per Person in 1950; OECD Countries

Answer 10

Countries with lower levels of output per person in 1950 have typically grown faster.

Question 11

What characterized Europe from the end of the Roman Empire to around the year 1500?

Answer 11

Europe was in a Malthusian trap or Malthusian era during this period, characterized by stagnation in output per person due to heavy dependence on agriculture and limited technological progress.

Question 12

When did Europe experience a shift towards positive but still small growth in output per person?

Answer 12

After 1500, Europe began to experience positive but still relatively small growth in output per person.

Question 13

What was the annual growth rate of the United States between 1820 and 1950?

Answer 13

Between 1820 and 1950, the annual growth rate of the United States was 1.5%.

Question 14

What is convergence in the context of economic growth?

Answer 14

Convergence refers to the process where less developed economies grow at a faster rate than more developed ones, leading to a reduction in the income gap between them.

Question 15

Which Asian countries experienced significant convergence, often referred to as the “four tigers”?

Answer 15

The four tigers, including Singapore, Taiwan, Hong Kong, and South Korea, experienced significant convergence and high growth rates.

Question 16

What challenges did many African countries face in terms of economic growth between 1960 and 2011?

Answer 16

Many African countries were very poor in 1960, and some of them had negative growth of output per person between 1960 and 2011, primarily due to internal or external conflicts.

Question 17

What is the equation for the aggregate production function?

Answer 17

The aggregate production function is represented as Y = F(K, N), where Y is output, K is capital, and N is labor.

Question 18

What does the concept of constant returns to scale mean in the context of the production function?

Answer 18

Constant returns to scale means that if you multiply both capital (K) and labor (N) by the same factor (x), the output (Y) will also increase by that factor (xY = F(xK, xN)).

Question 19

How do decreasing returns to capital and labor impact the production function?

Answer 19

Decreasing returns to capital mean that as you increase the amount of capital, the increase in output becomes progressively smaller. Similarly, decreasing returns to labor mean that as you increase the amount of labor, the increase in output also becomes smaller.

Question 20

What is the relation between output per worker (Y/N) and capital per worker (K/N) in the context of the production function?

Answer 20

The relation is (Y/N) = F(K/N, 1), which describes how output per worker depends on capital per worker.

Question 21

How are increases in capital per worker represented in the production function?

Answer 21

Increases in capital per worker are represented as movements along the production function.

Question 22

What causes shifts (up) of the production function in the context of economic growth?

Answer 22

Improvements in the state of technology lead to shifts (up) of the production function.

Question 23

What are the two primary sources of economic growth?

Answer 23

Economic growth comes from capital accumulation (a higher saving rate) and technological progress (the improvement in the state of technology).