Chapter 7 (Production and Growth)

Question 1

First, we examine international data on real

GDP per person

Answer 1

These data will give you some sense of how much the level and growth of living standards vary around the world.

Question 2

Second, we examine the role of productivity—the amount of goods and services produced for each hour of a worker’s time

Answer 2

In particular, we see that a nation’s standard of living is determined by the productivity of its workers, and we consider the factors that determine a nation’s productivity

Question 3

Third, we consider the link between

Answer 3

productivity and the economic policies that a nation pursues

Question 4

The growth rate of 2.0 percent per year

Answer 4

ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over many years

Question 5

Explaining the large variation in living standards around the world is, in one sense, very easy.

Answer 5

As we will see, the explanation can be summarized in a single word—productivity. But, in another sense, the international variation is deeply puzzling.

Question 6

If Crusoe is good at catching fish, growing vegetables, and making clothes, he lives well. If he is bad at doing these things, he lives poorly

Answer 6

Because Crusoe gets to consume only what he produces, his living standard is tied to his productivity

Question 7

The term productivity refers to the

Answer 7

quantity of goods and services that a worker can produce for each hour of work.

Question 8

If Crusoe finds a better place to catch fish, his productivity rises.

Answer 8

This increase in productivity makes Crusoe better off: He could eat the extra fish, or he could spend less time fishing and devote more time to making other goods he enjoys.

Question 9

The reason why GDP can measure these two things simultaneously is that, for the economy as a whole, they must be equal.

Answer 9

Put simply, an economy’s income is the economy’s output

Question 10

one of the ten principles of economics in Chapter 1 is that a country’s standard of living depends on

Answer 10

its ability to produce goods and services.

Question 11

Crusoe will be better at catching fish, for instance, if he has more fishing poles, if he has been trained in the best fishing techniques, if his island has a plentiful fish supply, and if he invents a better fishing lure. Each of these determinants of Crusoe’s productivity

Answer 11

which we can call physical capital, human capital, natural resources, and technological knowledge—has a counterpart in more complex and realistic economies

Question 12

The stock of equipment and structures that are used to produce goods and services is called

Answer 12

physical capital, or just capital

Question 13

More tools allow

Answer 13

work to be done more quickly and more accurately.

Question 14

the inputs used to produce goods and services—labor, capital, and so on—are called the factors of production

Answer 14

An important feature of capital is that it is a produced factor of production. in other words, it was the product previously made or made first

Question 15

Human capital

Answer 15

is the economist’s term for the knowledge and skills that workers acquire through education, training, and experience

Question 16

Natural resources

Answer 16

are inputs into production that are provided by nature, such as land, rivers, and mineral deposits. Natural
resources take two forms: renewable and nonrenewable

Question 17

A forest is an example of

Answer 17

a renewable resource. When one tree is cut down, a seedling can be planted in its place to be harvested in the future.

Question 18

Oil is an example of

Answer 18

a nonrenewable resource. Because oil is produced by nature over many thousands of years, there is only a limited supply. Once the supply of oil is depleted, it is impossible to create more.

Question 19

A fourth determinant of productivity is

Answer 19

technological knowledge—the understanding of the best ways to produce goods and services.

Question 20

Technological knowledge refers to society’s understanding about how the world works

Answer 20

Human capital refers to the resources expended transmitting this understanding to the labor force.

Question 21

Despite the apparent appeal of such arguments, most economists are less concerned about such limits to growth than one might guess

Answer 21

They argue that technological progress often yields ways to avoid these limits. If we compare the economy today to the economy of the past, we see various ways in which the use of natural resources has improved.

Question 22

The prices of most natural resources (adjusted for overall inflation) are stable or falling.

Answer 22

It appears that our ability to conserve these resources is growing more rapidly than their supplies are
dwindling. Market prices give no reason to believe that natural resources are a limit to economic growth.