Chapter 11

Question 1

no sustainable economic growth occurred before

Answer 1

the middle ages

Question 2

significant economic growth did not really begin until the

Answer 2

industrial revolution

Question 3

before the industrial revolution

Answer 3

production of most goods had relied on human or animal power

Question 4

in the long run,

Answer 4

small differences in economic growth rates result in big differences in living standards

Question 5

outside of developing countries there are newly industrialized countries

Answer 5

1980s &1990s : singapore, south korea, taiwan
Today: china, india

Question 6

economic growth model

Answer 6

seeks to explain growth rates in real GDP per capita over the long run

Question 7

two main factors of labor production

Answer 7

1. the quantity of capital per hour worked
2. level of technology

Question 8

our model will concentrate on changes in

Answer 8

quantity of capital and technological changes

Question 9

technological change

Answer 9

a change in the quantity of output a firm can produce using a given quantity of inputs (NOT the same as just getting more physical capital)

Question 10

three main sources of technological change

Answer 10

better machinery and equipment, increases in human capital, better means of organizing and managing production

Question 11

better machinery and equipment

Answer 11

inventions have allowed faster economic growth
ex. steam engines, machine tools, electricity, computers, internet

Question 12

increases in human capital

Answer 12

human capital = training, education
-growth itself allows more human capital to accumulate

Question 13

better means of organizing and managing production

Answer 13

if managers can do a better job of organizing production, then labor productivity can increase
making sure that labor is working on exactly what is needed and not too many people hired unneeded production

Question 14

per-worker production function- real GDP per hour worked

Answer 14

Y / L

Question 15

per-worker production function- capita per hour worked

Answer 15

K / L

Question 16

the first units of capital would be the most effective, allowing

Answer 16

output per hour to increase most
- go from K = 0 to K = 1 (output will greatly increase)

Question 17

subsequent increases in K would result in

Answer 17

diminishing returns

Question 18

diminishing returns

Answer 18

smaller increases in output resulting from increasing one factor of production progressively higher while keeping the other factors of production constant

Question 19

keep L the same and keep adding K

Answer 19

see further increasing in K do not add much to the output per worker

Question 20

if a country is relatively lacking in capital- like many of the developing countries

Answer 20

then, increase in K will be very effective at increasing Y / L

Question 21

in countries where the amount if capital is already relatively high

Answer 21

then, technology would increase, which is more effective in increasing Y / L

Question 22

Solow Growth Model

Answer 22

developed by Nobel Laureate Robert Solow in the 1950s, did not seek to explain technological change, instead treating it as random
- but was great if/when technology change happened

Question 23

new growth theory

Answer 23

a model of long-run economic growth that emphasizes that technological change is influenced by economic incentives and so is determined by the working of the market

Question 24

knowledge capital is nonrival and nonexcludable,

Answer 24

a public good, results in increasing returns (not at the firm level, but at the economy level)

Question 24

physical capital is rival and exclusive,

Answer 24

a private good, and this results in its diminishing returns

Question 24

increases in knowledge capital result from

Answer 24

research and development, and other technological advances

Question 25

free riding

Answer 25

benefitting from goods and services you do not pay for

Question 25

public goods, such as knowledge capital generation, results in

Answer 25

free riding

Question 26

the public good nature of knowledge capital leads to a role for government policy in

Answer 26

protecting intellectual property with parents and copyrights, subsidizing research and development, subsidizing education

Question 27

macroeconomics, the correcting of a positive externality

Answer 27

reward firms that create new knowledge that benefits us all

Question 28

free markets and proper incentives create

Answer 28

growth

Question 29

government can allow the markets and incentives to

Answer 29

function in ways that foster growth

Question 30

governments seek to protect intellectual property through the use of

Answer 30

patents and copyrights
allowing firms to benefit from their own research and development increases their incentive to perform it

Question 31

patents

Answer 31

the exclusive right to produce a produce for a period of 20 years from the date the patent is applied for, designed to help balance the chance for firm to benefit from its invention against the need of society to benefit from it

Question 32

Copyrights

Answer 32

granting the exclusive right to use the creation during and 70 years after the creators’ lifetime

Question 33

governments might perform research directly

Answer 33

like NASA and the national institutes of health

Question 34

governments might perform research directly can also

Answer 34

subsidize researchers at institutions like universities, can provide tax-incentive to firms performing research and development

Question 35

if firms provide technically training , they recover

Answer 35

costs by paying trainee workers lower wages, decreasing the incentive for workers to take such jobs

Question 36

a solution to this problem?

Answer 36

government subsidize education, training

Question 37

growth model: gale of creative destruction examples

Answer 37

the automobile replace the horse-drawn carriage, online shopping “destroyed malls”, streaming may destroy blu-ray

Question 38

is the destruction of past technologies bad?

Answer 38

no, losses (costs) are absorbed by a small few and may be temporary , benefits are given to many, and are long lasting

Question 39

the entrepreneurs according to schumpeter

Answer 39

central to economic growth; profits provide entrepreneurs the incentives for bringing resources together and take risks

Question 40

improvements in service comes through quality

Answer 40

differences which is hard to measure

Question 41

america concentrated more on quality-of-life issues

Answer 41

bought quality of life “luxury” goods, other higher-income countries had similarly timed slowdowns

Question 42

today: slow growth ? maybe

Answer 42

low population growth leads to less housing demand and IT requires less capital today, and capital is cheaper

Question 43

some economists argue that changes in quality of services have been particularly important over the last few decades,

Answer 43

only examining GDP growth has understated the actual growth of the economy

Question 44

what casts doubt on the future of growth in the us

Answer 44

improving consumer products rather than improving labor productivity

Question 45

why will poor countries grow faster than rich countries

Answer 45

1. the effect of additional K is greater for countries with less K
2. greater advances in technology are immediately available to poorer countries

Question 46

prediction of growth model graph

Answer 46

less developed countries will “catch up” to rich countries

Question 47

why don’t we just go in and build a bunch of factories un Haiti and sub-saharan africa

Answer 47

we tried that many many times and it did not work

Question 48

four factors why many low-income countries are growing so slowly

Answer 48

1. failure to enforce the rule of law
2. wars and revolutions
3. poor public education and health
4. low rates of saving and investment

Question 49

rule of law

Answer 49

the ability of a government to enforce the laws of the country, particularly with respect to protecting private property and enforcing contracts

Question 50

for entrepreneurs in a market economy to succeed, the government must guarantee

Answer 50

property rights

Question 51

property rights

Answer 51

the rights individuals or firms have to the exclusive use of their property, including the right to buy and sell, otherwise entrepreneurs will not risk starting a business

Question 52

if a property is state owned

Answer 52

then no incentives to work hard or innovate
ex. soviet union and north korea

Question 53

foreign direct investment

Answer 53

the purchase or building by a corporation of a facility in a foreign country

Question 54

foreign portfolio investment

Answer 54

the purchase by an individual or a firm of stocks or bonds issued in another country

Question 55

globalization

Answer 55

the process if countries becoming more open to foreign trade and investment

Question 56

countries embracing globalization experienced

Answer 56

much higher rates of growth than countries that didn’t

Question 57

microloans

Answer 57

given to poorer countries to start businesses, about $25, sort of like a small scale shark tank

Question 58

what sort of actions can governments take to encourage growth?

Answer 58

government can provide the institutions to allow entrepreneurship & firms thrive

Question 59

enhancing property rights and the rule of law

Answer 59

independent courts, eliminate corruption and allow individuals to have private property

Question 60

health care and education have increasing returns

Answer 60

prevents “brain drain” where educated people leave countries

Question 61

technological changes important for capital growth

Answer 61

low-income countries can encourage technological change by encouraging foreign direct investment

Question 62

governments can encourage savings and investment

Answer 62

tax incentives, like tax directed savings plans, or investment kaw credits

Question 63

costs to economic growth

Answer 63

pollution, deforestation, depletion of natural resources, diminishment of distinctive cultures, big firms “taking advantage” of poor countries and cheaper labor

Question 64

arguments of economic growth are normative

Answer 64

most economists agree that the benefits if growth for outweigh any possible costs