7.1 Labor Productivity and Economic Growth

Which of the following applies to economic growth?

Economic growth allows people to buy more goods and services.

Economic growth is the expansion of the economy’s production possibilities.

Economic growth is represented by a movement from a point inside the production possibilities curve to a point on the curve.

Select the correct answer below:

1, 2, and 3

1 and 2 only

1 and 3 only

1 only

1 and 2 only

We define economic growth as the process through which an economy achieves an outward shift in its production possibilities curve, where people can buy more goods and services.

A ___________ governs and sustains property rights and contractual rights, and is an important contributor to a healthy economic climate.

Select the correct answer below:

trade policy

legal system

market-based economy

special economic zone

legal system

Both a market economy and a legal system that governs and sustains property rights and contractual rights are important contributors to a healthy economic climate.

Which of the following factors determine labor productivity?

Select the correct answer below:

technological change

human capital

economies of scale

all of the above

all of the above

Labor productivity is the value that each employed person creates per unit of his or her input. Technological change (invention and innovation), human capital, and economies of scale determine labor productivity.

All of the following are inputs for the aggregate production function with GDP as its output except:

Select the correct answer below:

human capital

technology

physical capital per person

workforce

physical capital per person

With GDP as its output, the aggregate production function has workforce, human capital, physical capital, and technology as its inputs. However, if GDP per capita is the output, inputs must be measured and included on a per-person basis (for example, physical capital per person). 

Which of the following groups of workers are not included when measuring dollar value per hour contributed to output?

Please select two correct answers.

Select all that apply:

farmers

workers in the non-profit sector

government workers

economists

farmers

government workers

Government workers are not included because their output is not sold in the market, making productivity hard to measure. Farming is also excluded because it is such a small share of the U.S. economy.

The current president of Country Y wants to set realistic goals for the future of his country for upcoming years. Help Country Y's president determine the future GDP of country Y 2 years from now if the present GDP is $506,750 and the growth rate is 2%. 

Note: Round the Future GDP to the nearest whole number.

$527223

To calculate the future GDP use the formula below:

GDP at starting date×(1+growth rate of GDP)^years=GDP at end date

$506,750×(1+0.02)2=$527,223

True or false?

Economists believe that the single most important factor in labor productivity is the quantity of available labor.

False

Economists believe that the quality of a labor force--its skills, knowledge, and discipline--is the single most important factor in labor productivity. more important than the quantity of labor.

Before the period of modern economic growth in the last two centuries, the average person’s standard of living ______________________.

Select the correct answer below:

was steadily improving, but at a slow rate

had not changed much for centuries

was much higher than it is now since the average person did not have to work

was most likely the same as it is now, depending on how standard of living is measured

had not changed much for centuries

Before the last two centuries, although rulers, nobles, and conquerors could afford some extravagances and although economies rose above the subsistence level, the average person’s standard of living had not changed much for centuries.

An aggregate production function can be thought of as a(n) _______________ production function.

Select the correct answer below:

accumulated

macroeconomic

microeconomic

per capita

macroeconomic

In macroeconomics, we call the connection from inputs to outputs for the entire economy an aggregate production function or a macroeconomic production function. 

A microeconomic production function, on the other hand, describes a firm's, or perhaps an industry's, inputs and outputs.

Property rights are the legal rights of ownership on which others are __________________.

Select the correct answer below:

not allowed to infringe without authorization from the relevant government

able to specify allowable quantities of pollution

not allowed to infringe without paying compensation

allowed to infringe by paying the property owner's required rate

not allowed to infringe without paying compensation

By definition, property rights are the legal rights of ownership on which others are not allowed to infringe without paying compensation.

Which of the following accurately explains the "New Economy" controversy?

Please select two correct answers.

Select all that apply:

Some economists argue that productivity of workers does not relate to the growth of the economy.

Some economists argue that technological advances guarantee higher average productivity growth in the long run.

Some economists argue that strong short term productivity growth does not indicate higher productivity in the long run.

Some economists feel that productivity growth and GDP growth are directly related.

Some economists argue that technological advances guarantee higher average productivity growth in the long run.

Some economists argue that strong short term productivity growth does not indicate higher productivity in the long run.

The "new economy" is the idea that today's economy is based on extraordinary advances in communication and information technology from the 1990s. Economists of different schools of thought have different views regarding the sustainability of this growth. Optimistic supporters argue that these advancements will generate higher average productivity growth for decades to come. Pessimists argue that a decade of productivity growth is not proof of long-term productivity.

Jill is interested in studying economic growth in her country. If Jill's country's present GDP is $489001 and grows 1% every year, what is the future GDP of Jill's country 10 years from now? Round your answer to the nearest whole number.

To calculate the future GDP use the formula below:

GDP at starting date×(1+growth rate of GDP)^years=GDP at end date

$489,001×(1+0.01)10=$540,161