Chapter 11: Economic Growth and the Wealth of the Nation

Question 1

Wealth is a ________ focus.

Answer 1

Long term

Question 2

Income is a _________ focus.

Answer 2

Short term

Question 3

Sources of Growth:

Answer 3

(1) Resources
(2) Technology
(3) Institutions (Political and Economic)
(4) Economic Freedom

Question 4

Wealthier societies provide human beings with better living standards, which includes better:

Answer 4

(1) Nutrition
(2) Educational Opportunities
(3) Economic Freedom
(4) Health Care
(5) Sources of Entertainment

Question 5

Basic measure of a nation’s income

Answer 5

GDP

Question 6

Basic, foundational measure of “average living standards”

Answer 6

GDP Per Capita

Question 7

Tendency to overestimate the severity of economic problems and underestimate the past, present, and future performance of the economy. We fail to understand the speed and scope of human progress.

Answer 7

Pessimistic Bias

Question 8

People make a grave mistake when they idealize conditions in the past.

Answer 8

The “Good Ole Days” Fallacy

Question 9

Measured as the growth of real GDP per capita.

Answer 9

Economic Growth

Question 10

Real Per Capita GDP Over 200 Years

Answer 10

Two centuries ago, everyone was poor and while some countries have experienced growth, many others have left behind.

Question 11

% Change in Per Capita Real GDP =

Answer 11

% Change in Nominal GDP - % Change in Prices - % Change in Population

Question 12

If the annual growth rate is X%, the size of that variable doubles every (70/X) years

Answer 12

Rule of 70

Question 13

Causes of Economic Growth:

Answer 13

(1) Resources (Inputs, Factors of Production)
(2) Technology
(3) Institutions (Economics, Political, Cultural)

Question 14

The inputs used to produce goods and services

Answer 14

Resources

Question 15

Factors of Production

Answer 15

Resources

Question 16

Resources Comprise of:

Answer 16

(1) Natural Resources
(2) Human Capital
(3) Physical Capital

Question 17

Include physical land and the input naturally occurring in or on the land.

Answer 17

Natural Resources

Question 18

The resource represented by the quantity, knowledge, and skills of the workers in an economy.

Answer 18

Human Capital

Question 19

It is possible to expand human capital by ______ the number of workers and ______ the existing labor force.

Answer 19

(1) Increasing

(2) Educating

Question 20

Comprises the tools and equipment used in the production of goods and services

Answer 20

Physical Capital

Question 21

The purpose of physical capital?

Answer 21

Aid in the production of future output

Question 22

The knowledge available for use in production

Answer 22

Technology

Question 23

Introduces new techniques or methods so that firm can produce more valuable outputs per unit of input.

Answer 23

Technological Advancements

Question 24

T or F: Economic growth occurs when the resources and technology work together.

Answer 24

True

Question 25

Significant practices, relationships, or organizations in a society. They are the official and unofficial conditions that shape the environment in which decisions are made.

Answer 25

Institutions

Question 26

Types of Institutions:

Answer 26

(1) Laws
(2) Regulations
(3) Government
(4) Work Habits
(5) Expectations
(6) Political Behaviors

Question 27

Important Institutions:

Answer 27

(1) Political stability and rule of law
(2) Private property rights
(3) Stable money and prices
(4) Competitive and open markets
(5) Efficient taxes

Question 28

The rights of individuals to own property to use it in production, and to own the resulting output.

Answer 28

Private Property Rights

Question 29

Farmers split commune into family-owned plots and agreed to keep surplus agricultural output beyond government quota.

Answer 29

Xiaogang Agreement

Question 30

Property Rights Must Be:

Answer 30

(1) Defined
(2) Defendable
(3) Divestible

Question 31

Without property rights…

Answer 31

• There can be no exchange
• Without exchange there is no specialization
• Without specialization in exchange productivity plummets
• If productivity plummets, so does your standard of living

Question 32

Three Market Institutions Essential for Economic Growth:

Answer 32

(1) Competitive Markets
(2) International Trade
(3) Flow of Funds Across Borders

Question 33

Ensures that consumers get the lowest prices and promote competition and innovation

Answer 33

Competitive Market

Question 34

Allows nations to reap the benefits from specialization and trade

Answer 34

International Trade

Question 35

Helps firms access funds so they can invest and increase future production

Answer 35

Flow of Funds Across Borders

Question 36

Taxes sufficient to fund the activities of government while impeding production and consumption decisions as little as possible

Answer 36

Efficient Taxes

Question 37

Taxes have to be ____ enough to support an effective government but ____ enough as to not reduce incentives for production.

Answer 37

(1) High

(2) Low

Question 38

Designed to reduce incentives for politically motivated monetary policy, which typically leads to highly variable inflation rates.

Answer 38

Federal Reserve

Question 39

____________ allows us to produce more output while using fewer resources.

Answer 39

Technological Advancement

Question 40

Resources:

Answer 40

(1) Land
(2) Labor
(3) Capital