Economics 102: Macroeconomics Ch 10. Economic Growth and Productivity

Economic Growth

• when an economy’s long-run potential output increases

• government & central bank leaders

• helping the economy increase its long-run potential

• many advantages

• higher standard of living and lower unemployment

• happens over time

• long-run potential

Why is real GDP a poor indicator of economic growth?

1. Real GDP is directly related to short-term employment and not economic growth.

2. Real GDP is a short run measure, and economic growth is a long run potential.

3. Real GDP is changed quickly by tax policies, which do not reflect economic growth.

4. Real GDP is a monetary measure that does not take other factors into account.

5. Real GDP is only used as a long run measure and does not show accurate economic growth.

Real GDP is a short run measure, and economic growth is a long run potential.

Standards of living will increase when a(n) _____ grows faster than the _____.

1. economy, population's productivity

2. population, population's productivity

3. company's investment, company's savings

4. population, economy

5. economy, population

economy, population

How is savings directly connected to economic growth?

1. Higher taxes on savings leads to higher economic growth.

2. The interest rates the government sets on savings create additional jobs.

3. The interest rates on savings are set by the government.

4. Money in savings accounts gets loaned out to businesses who invest into the economy.

5. Exports are usually lower when people save more.

Money in savings accounts gets loaned out to businesses who invest into the economy.

Which of the following is a characteristic of economic growth?

1. An economy's unemployment rate grows.

2. An economy's long run potential output increases.

3. An economy has a zero unemployment rate.

4. The short run aggregate supply curve falls.

5. The natural rate of unemployment increases.

An economy's long run potential output increases.

Which of the following statements is FALSE about long run economic growth?

1. It is illustrated as an outward shift in the production possibilities curve.

2. It is illustrated as a rightward shift in the short-run aggregate supply curve.

3. It increases when people become more productive.

4. It is illustrated as a rightward shift in the long run aggregate supply curve.

5. It usually leads to more jobs.

It is illustrated as a rightward shift in the short-run aggregate supply curve.

Standard of Living

describes the material welfare and the quality of life of the people in a certain country

Real GDP per capita

• the value of national output divided by the population

• real GDP/population

Savings Rate

this increase in savings ultimately helps raise the standard of living

In the long run, what is a country's standard of living dependent on?

1. Tax rate

2. Money market

3. Material possessions

4. Productivity

5. Unemployment rate

Productivity

Which one of the following scenarios would cause a nation's standard of living to increase?

1. Real GDP rises faster than inflation.

2. Real GDP rises faster than the unemployment rate.

3. Real GDP rises slower than inflation.

4. Real GDP rises faster than the population.

5. Real GDP rises slower than the unemployment rate.

Real GDP rises faster than the population.

Economists define Real GDP per capita as which of the following?

1. The gross domestic product in real terms

2. The value of economic output of a nation divided by the population

3. The amount of savings divided by the population

4. The value of national output in nominal terms

5. The consumption + investment + government purchases + net exports

The value of economic output of a nation divided by the population

Country A has a real GDP of $5,000 and a population of 20, while Country B has a real GDP of $20,000 and a population of 100. Which of the following statements is true?

1. Productivity in Country B must be lower.

2. Country A has a higher growth rate in real GDP.

3. Country B has a higher standard of living.

4. Country B has a higher growth rate in real GDP.

5. Country A has a higher standard of living.

Country A has a higher standard of living.

What is the standard of living?

1. The direct response to energy shock

2. The actual level of employment

3. The amount of capital investments that are available

4. The total market value of goods and services produced

5. A measure of a nation's economic well-being

A measure of a nation's economic well-being

Productivity

• long-run growth engine

• the amount of output that gets produced per unit of input

Labor Productivity

the rate of a worker’s output per unit of input in a certain amount of time

Physical Capital

the equipment and structures used to produce goods and services

Technology

a nation’s understanding of how the world works

Human Capital

the knowledge and skills that workers acquire through education, training, and their experience

Natural Resources

the inputs to production that come from nature

Economists call the equipment and structures used to produce goods and services:

1. Physical capital

2. New construction permits

3. Investment capital

4. Equities

Physical capital

How is labor productivity, measured as output per worker, affected by economic drivers?

1. It falls with increases in technology.

2. It falls with increases in physical capital.

3. It rises with decreases in natural resources.

4. It rises with increases in technology.

It rises with increases in technology.

Human capital refers to which of the following?

1. The technology that is available to workers.

2. New equipment purchased by businesses.

3. The education and experience of the labor force.

4. Investments used by individuals to fund a business.

The education and experience of the labor force.

Which of the following will most likely occur as a result of an increase in labor productivity?

1. Higher interest rates and lower investment.

2. A lower savings rate and higher money supply.

3. Lower exports and higher prices.

4. Higher economic output and lower inflation.

Higher economic output and lower inflation.

Which of the following is NOT a determinant of the productivity of a nation?

1. Technology

2. Price controls

3. Physical capital

4. Human capital

Price controls

Human Capital

the amount of knowledge and skills that each worker can apply to their labor, and also includes the general health of the labor force

What is the main benefit of investing in human capital?

1. Lower interest rates across the entire economy

2. An increase in the technology available to employees

3. The government will receive more tax revenue

4. Lower prices and a larger money supply

5. An increase in productivity, which leads to greater economic output

An increase in productivity, which leads to greater economic output

Country A invests 25% of GDP into human capital, while Country B invests only 9%. Which country will grow faster and why?

1. Both countries will grow about the same in real terms

2. Country A will grow faster because it invested more into human capital

3. Country B will grow faster because it invested less into physical capital

4. Country A will grow faster because it invested more into physical capital

5. Country B will grow faster because it invested less into human capital

Country A will grow faster because it invested more into human capital

Which of the following will likely increase productivity in a corporation?

1. Higher energy prices

2. Less education

3. A lower birth rate

4. Outsourcing manufacturing jobs to overseas countries

5. Availability of influenza vaccines

Availability of influenza vaccines

Labor productivity and economic growth will increase when what happens?

1. A nation raises prices

2. Taxes rise

3. A nation invests into education for all

4. The money supply is reduced

5. A nation raises the minimum wage

A nation invests into education for all

What is human capital?

1. New equipment purchased by businesses

2. The technology that is available to workers

3. The amount of savings

4. Investments used by individuals to fund a business

5. The education and experience of the labor force

The education and experience of the labor force

Physical Capital

• part of the production process; what economists call a factor of production

• it includes things like buildings, machinery, equipment and computers

Which of the following is NOT an example of physical capital?

1. Computers

2. Patents

3. Buildings

4. Inventory

Patents

Which of the following would be considered physical capital in agriculture?

1. A tractor used by the farmer

2. The land on which crops are grown

3. The farmer

4. The seeds that produce the harvest

A tractor used by the farmer

_____ refers to the total amount of goods and services are produced within the economy.

1. Gross national product

2. Gross national distribution

3. Gross product distribution

4. Gross domestic product

Gross domestic product

Rachel manages a box factory and just hired Franco. Does Franco count as physical capital?

1. No; he is considered human capital.

2. No; he might be an accountant rather than a factory worker.

3. Yes; he is a physical part of the production process.

4. Yes; he was hired for his physical abilities.

No; he is considered human capital.

Why is physical capital important to an economy?

1. It potentially leads to lower taxes for private businesses.

2. It decreases the national debt.

3. It increases the productivity of goods and services.

4. It increases the country's money supply.

It increases the productivity of goods and services.

Productivity

is the amount of output that gets produced per unit of input

Technology

is a nation’s understanding of how the world works

Research & Development

is the use of resources to discover new knowledge for the purpose of developing new products or better processes

Which of the following BEST defines technology?

1. A company's logo and trademark

2. A nation's understanding of how the world works

3. The amount of output that gets produced per unit of input

4. How many machines a business owns

A nation's understanding of how the world works

Why is productivity significant to economic growth?

1. Because nations with a higher productivity grow at a faster rate.

2. Because higher productivity slows down economic growth.

3. Because nations with a higher productivity have lesser standards of living, thus disrupting economic growth.

4. Because while productivity doesn't directly impact economic growth, it increases investments.

Because nations with a higher productivity grow at a faster rate.

Why is research and development significant?

1. To decrease the number of errors that occur within a production cycle to less than 6 errors for each 1,000,000 products.

2. To find new ways of decreasing the competitivity of the field.

3. To discover new knowledge for the purpose of developing new products or processes.

4. To ensure that the supply matches the demand of the market.

To discover new knowledge for the purpose of developing new products or processes.

One way to create new technologies is by investing into _____.

1. new assembly line equipment

2. natural resources

3. consumer retail stores

4. research & development

research & development

Which of the following is FALSE regarding the productivity of a nation?

1. It is considered the long-run growth engine of a nation.

2. It leads to higher economic output.

3. It cannot be increased because of rising prices.

4. It helps workers produce more goods and services per unit of input.

It cannot be increased because of rising prices.

Fiscal Policy

the use of government spending and taxation to influence the level of aggregate demand and, therefore, economic activity

Human Capital

the combination of education, knowledge, skills, and health of workers who perform labor in the economy

How can governments encourage savings and investment?

1. By increasing deficit spending

2. By decreasing tax rates on savings accounts and investment income

3. By encouraging a higher birth rate

4. By decreasing taxes on consumption

By decreasing tax rates on savings accounts and investment income

Why is fiscal policy important for the economy?

1. It directly influences the price of precious metals like gold and silver

2. It influences aggregate demand.

3. It controls the natural resources of a particular economy.

4. It directly impacts interest rates.

It influences aggregate demand.

Which of the following will most likely encourage long-run economic growth?

1. An increase in welfare payments to low-income individuals

2. More defense spending

3. An increase in the per capita savings rate

4. Discouraging immigration

An increase in the per capita savings rate

Which of the following is MOST likely to produce higher economic growth in the long run?

1. Investment tax credits

2. Higher interest rates

3. Higher tax rates on investment income

4. Higher illiteracy

Investment tax credits

How can the government encourage investment in human capital?

1. By investing in education

2. By decreasing government spending

3. By raising taxes

4. By increasing the value of the currency

By investing in education

national income accounting

the accounting methodology used to calculate GDP

gross domestic product (GDP)

how economists measure the size of a country’s economy

expenditure approach

• takes into account four different types of expenditures

• net exports + gross private domestic investment + government purchases + personal consumption

personal consumption expenditure

everything individuals in the economy buy

government purchases

• new tanks

• fighter jets

• power to keep the lights on

exports

produced in our economy, but ended up outside of the country

net exports

all exports minus imports

gross private domestic investment

• capital items

• new buildings

• machines

• equipment

labor income

the costs of fringe benefits like insurance and retirement, and taxes such as unemployment and social security

rental income

includes rental income to landlords, also includes royalties from patents and copyrights

interest income

count interest that is income to families & businesses, but don’t include income payments made by individuals, companies, or the government

accounting profits of all firms

all the profit made on all the sales that any company made to individuals, or other companies, within the same country

income approach

• summed labor income, rental income, interest income, and corporate profits

• labor income + rental income + interest income + accounting profits of all firms

Which of the following metrics is used when calculating GDP using the expenditure approach?

1. International consumption

2. Government purchases

3. Interest of government debt

4. Net Imports

Government purchases

What is the definition of GDP?

1. Gross demanded products: Products produced throughout the world that other countries demand because of shortages in supply.

2. Gross domestic product: The total value of all goods and services produced in a country in a given year (or other time period).

3. Government and defense purchases: Purchases made by the government for operations and defense.

4. Gross defined profit: The total profits produced from all goods and services minus the costs of production, sales, etc.

Gross domestic product: The total value of all goods and services produced in a country in a given year (or other time period).

What is the accounting methodology used to calculate the GDP, regardless of the approach used?

1. Generally Accepted Accounting Principles

2. Fund accounting

3. National income accounting

4. International Financial Reporting Accounting

National income accounting

Which of the following metrics is used when calculating GDP using the income approach?

1. Interest received by companies only.

2. Income taxes submitted to the federal government.

3. Labor and wages.

4. Accounting profits of international firms.

Labor and wages.

If GDP is calculated by both the expenditure approach and the income approach, what will be the difference in the end values?

1. If calculated correctly, there is no difference between GDP calculated using the expenditure approach or the income approach.

2. The difference is the value of government purchases included in the expenditure approach, but not the income approach.

3. The difference is the amount of interest collected by consumers on their deposits.

4. The difference is the value of exports purchased by international consumers because their purchases are counted in the income approach, but not the expenditure approach.

If calculated correctly, there is no difference between GDP calculated using the expenditure approach or the income approach.