Answers for Exam-1

Answers for Exam-1 - Answers for Exam #1 Questions: 1) see...

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Answers for Exam #1 Questions: 1) see Calculating GDP at Purchasing Power Parity handout for exact calculations. 2) Adam Smith’s sources of growth: Adam Smith isolated three main sources of economic growth: a) Increased stocks of capital and the growth of the labor force provide more inputs for the production function, leading to greater economic output. This serves to increase both total output and output per worker. When more people and more capital are available for production, more production can and will take place, spurring economic growth. b) Increased efficiency of production can be achieved through a greater division of labor. As the efficiency with which capital can be applied to labor improves, fewer inputs are needed for each unit of output. Thus, economic output increases, resulting in economic growth. c) Foreign trade acts to widen the market for domestically produced goods beyond the domestic market. Division of labor is limited by the size of the market, thus by increasing the market size through trade, greater division of labor is possible. Foreign trade also serves as a “vent for surplus.”
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This note was uploaded on 06/11/2008 for the course ECON 371 taught by Professor Vanderford during the Summer '08 term at Arizona.

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Answers for Exam-1 - Answers for Exam #1 Questions: 1) see...

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