EconomicGrowthCHAPTER9CHECKPOINTSProblem1Problem2Problem1Problem2Problem1Problem2ClickerversionClickerversionProblem3Problem1Problem2Problem3Problem3Checkpoint9.1Checkpoint9.2Checkpoint9.3Checkpoint9.4Problem3Problem4Problem4Problem5ClickerversionClickerversionClickerversionClickerversionClickerversionClickerversionPracticeProblem1

Mexico’srealGDPwas1,448billionpesosin1998and1,501billionpesosin1999.Mexico’spopulationgrowthratein1999was1.8percent.CalculateMexico’seconomicgrowthratein1999andthegrowthrateofrealGDPperpersoninMexicoin1999.CHECKPOINT9.1SolutionTheeconomicgrowthrateequalsthepercentagechangeinrealGDP:[(RealGDPin1999–RealGDPin1998)

÷RealGDPin1998]x100.Whenwesubstitutethenumbers,Mexico’seconomicgrowthrateequals[(1,501billion–1,448billion)÷1,448]x100.Mexico’seconomicgrowthratein1999was3.7percent.CHECKPOINT9.1GrowthrateofrealGDPperpersonequalsthegrowthrateofrealGDPminusthepopulationgrowthrate.Whenwesubstitutethenumbers,GrowthrateofrealGDPperperson=(3.7–1.8)percent,whichis1.9percent.ThegrowthrateofrealGDPperpersoninMexicoin1999was1.9percent.CHECKPOINT9.1PracticeProblem2CalculatetheapproximatenumberofyearsitwilltakeforrealGDPperpersoninChinatodoubleifitmaintainsaneconomicgrowthrateof10.6percentayearandapopulationgrowthrateof0.6percentayear.CHECKPOINT9.1SolutionThegrowthrateofrealGDPperpersonequalstheeconomicgrowthrateminusthepopulationgrowthrate.InChina,realGDPperpersongrowsat

(10.6–0.6)percentayear,whichis10percentayear.TheRuleof70tellsusthatthelevelofavariablethatgrowsat10percentayearwilldoublein70÷10years,or7years,ifthegrowthratesaremaintained.Itwilltake7yearsforrealGDPperpersontodouble.CHECKPOINT9.1PracticeProblem3

CalculatethechangeinthenumberofyearsitwilltakeforrealGDPperpersoninIndiatodoubleifrealGDPperpersonincreasesfrom8percentayearto10percentayear.CHECKPOINT9.1SolutionTheRuleof70tellsusthatavariablethatgrowsat

8percentayearwilldoublein70÷8years,whichisapproximately9years.Byincreasingitsgrowthrateto10percentayear,thevariablewilldoublein7years.RealGDPperpersoninIndiawilldoubletwoyearsearlier.CHECKPOINT9.1PracticeProblem1Thetableprovidessomedataforaneconomyin2006and2007.CalculatethegrowthrateofrealGDPin2007.CHECKPOINT9.2SolutionGrowthrateofrealGDPin2007equals(RealGDPin2207–RealGDPin2006)÷RealGDPin2006x100=($1,050–$1,000)÷$1,000)x100=5percent.CHECKPOINT9.2PracticeProblem2Thetableprovidessomedataforaneconomyin2006and2007.Calculatethelaborproductivityin2006and2007,andthegrowthrateoflaborproductivityin2007.CHECKPOINT9.2SolutionLaborproductivityequalsrealGDPperhouroflabor.In2006,laborproductivity=$1,000÷25=$40.00anhour.In2007,laborproductivity=$1,050÷9.6=$41.05anhour.Laborproductivity

growthrate=(41.05–40.00)÷40.00x100=3.75percent.CHECKPOINT9.2PracticeProblem3Thetableprovidessomedataforaneconomyin2006and2007.Calculatethegrowthrateofcapitalperhouroflaborin2007.CHECKPOINT9.2SolutionCapitalperhouroflabor

growthrate=(101.25–100)÷100x100.Capitalperhouroflaborgrowthrate=1.25percentCHECKPOINT9.2PracticeProblem1Whatdoesclassicalgrowththeorysaywilleventuallyendeconomicgrowth?CHECKPOINT9.3SolutionClassicalgrowththeorypredictsthatwhentherealwagerateexceedsthesubsistencerealwagerate,thepopulationgrows.Withanincreasingpopulation,thesupplyoflaborincreases,therealwageratefallsandispulledbacktowardsubsistencelevel.RealGDPincreases,butrealGDPperpersondecreases.CHECKPOINT9.3StudyPlanProblemWhatdoesclassicalgrowththeorysaywilleventuallyendeconomicgrowth?A. AMalthusianpopulationexplosionthatcannotbe sustained.B. Corruptionandotherabusesbypeopleingovernment.C. Afallingrealinterestrate.D. Theemergenceoflastingpeace.E. AMalthusianpandemic.CHECKPOINT9.3PracticeProblem2WhatdoesneoclassicalgrowththeorysayaboutthesourceofpersistentgrowthinrealGDPperperson?CHECKPOINT9.3SolutionNeoclassicalgrowththeorysaysthattechnologicaladvanceisthesourceofpersistentgrowthinrealGDPperperson.CHECKPOINT9.3StudyPlanProblemWhatdoesneoclassicalgrowththeorysayisnecessaryforrealGDPperpersontogrowpersistently?A. Thepopulationmuststopgrowing.B. Allcountriesmustadoptthesametechnologies.C. Savingandinvestmentareindependentoftherateof technologicaladvance.D. Capitalperpersonmustgrowatthesamerateasreal GDPperperson.E. Technologymustkeepadvancing.CHECKPOINT9.3PracticeProblem3WhatdoesneoclassicalgrowththeorysayistheprocessthatwillbringthegrowthofrealGDPperpersontoastop?CHECKPOINT9.3SolutionIftechnologystopsadvancing,realGDPgrowthslowsbecausecapitalaccumulationbringsdiminishingreturns.WithrealGDPgrowthslowing,savingandinvestmentfallandthegrowthrateofcapitaldecreasestothepopulationgrowthrate.RealGDPperpersonstopsgrowing.CHECKPOINT9.3StudyPlanProblemAccordingtoneoclassicalgrowththeory,thegrowthofrealGDPperpersonwillcometoastopwhen_______.A. populationgrowthspeedsupB. technologystopsadvancingandcapital accumulationbringsdiminishingreturns,which reducessavingandinvestmentC. capitalissubstitutedforlaborD.incomeincreases,peopleconsumemoreandsaving driesupCHECKPOINT9.3PracticeProblem4Whatisthedrivingforceofeconomicgrowthaccordingtonewgrowththeory?CHECKPOINT9.3SolutionThedrivingforceofeconomicgrowthaccordingtonewgrowththeoryisapersistentincentivetoinnovateandanabsenceofdiminishingreturns.CHECKPOINT9.3StudyPlanProblemWhatisthedrivingforceofeconomicgrowthaccordingtonewgrowththeory?A. Advancementsinmedicalresearch.B. Thepursuitofleisure.C. ReligionD. Productiveactivitiesthatcanbereplicatedwithno diminishingreturns.E. Foreigninvestment.CHECKPOINT9.3PracticeProblem1Whatarethepreconditionsforeconomicgrowth?CHECKPOINT9.4SolutionThepreconditionsforeconomicgrowthareeconomicfreedom,privatepropertyrights,andmarkets.Withoutthesepreconditions,peoplehavelittleincentivetoundertaketheactionsthatleadtoeconomicgrowth.CHECKPOINT9.4StudyPlanProblemWhatarethepreconditionsforeconomicgrowth?A. Entrepreneurialspiritandlowunemployment.B. Alargestandingarmyandsmallgovernment.C. Asmallgovernmentandpropertyrights.D. Lowunemploymentandalargestandingarmy.E. Economicfreedom,privatepropertyrights,andmarkets.CHECKPOINT9.4PracticeProblem2WhydoesmuchofAfricaexperiencesloweconomicgrowth?CHECKPOINT9.4SolutionSomeAfricancountriesexperiencesloweconomicgrowthbecausetheylackeconomicfreedom,privatepropertyrightsarenotenforced,andmarketsdonotfunctionwell.Peopleinthesecountrieshavelittleincentivetospecializeandtradeortoaccumulatebothphysicalandhumancapital.CHECKPOINT9.4StudyPlanProblemWhydoesmuchofAfricaexperiencesloweconomicgrowth?A. Itlacksmotivationtogrow.B. Itlacksaidfromdevelopedcountries.C. Itlacksnaturalresourcesandlabor.D. Itlackseconomicfreedom,privatepropertyrights thatareenforced,andmarketsthatfunctionwell.E. ItlacksUNassistance.CHECKPOINT9.4PracticeProblem3Whyiseconomicfreedomcrucialforachievingeconomicgrowth?CHECKPOINT9.4SolutionEconomicfreedomiscrucialforachievingeconomicgrowthbecauseeconomicfreedomallowspeopletomakechoicesandgivesthemtheincentivestopursuegrowth-producingactivities.CHECKPOINT9.4StudyPlanProblemWhyiseconomicfreedomcrucialforeconomicgrowth?A. Itgivestheincentivetosave,invest,expandhuman capital,anddiscoverandapplynewtechnologies.B. Itprotectsworkers’rightsandpreventsunfairfiring.C. Itupholdsdemocracy,whichisessentialifan economyistogrow.D. Onlygoodgovernmentcanmaketheright investment decisions.E. Itensuresthatthemajorityofcitizensmakethemost importantdecisions.CHECKPOINT9.4PracticeProblem4Whatroledopropertyrightsplayinencouragingeconomicgrowth?CHECKPOINT9.4SolutionClearlydefinedproper