Microsoft Word - Solution-Chapter-6

Microsoft Word - Solution-Chapter-6 - Chapter 23 1. J p n s...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
C h a p t e r 2 3 1. Japan’s real GDP was 561 trillion yen in 2007 and 569 trillion yen in 2008. Japan’s population was 127.7 million in 2007 and 127.8 million in 2008. Calculate a. The economic growth rate. The economic growth rate is the growth rate of real GDP. Between 2007 and 2008 this growth rate equals [(569 trillion yen 561 trillion yen)/561 trillion yen] 100, which is 1.4 percent. b. The growth rate of real GDP per person. Japan’s population grew at [(127.8 million 127.7 million)/127.7 million] 10 0, which is 0.1 percent. Japan’s economic growth rate is 1.4 percent, so the growth rate of real GDP per person is 1.4 percent 0.1 percent, or 1.3 percent. c. The approximate number of years it takes for real GDP per person in Japan to double if the 2008 economic growth rate and population growth rate are maintained. Japan’s real GDP per person is growing at 1.3 percent a year. The rule of 70 tells us that Japan’s real GDP per person will double in 70/1.3 = 54 years. 2. For three years, there was no technological change in Longland but capital per hour of labor increased from $10 to $20 to $30 and real GDP per hour of labor increased from $3.80 to $5.70 to $7.13. Then, in the fourth year, capital per hour of labor remained constant but real GDP per hour of labor increased to $10. a. Does Longland experience diminishing returns? Explain why or why not. Longland experiences diminishing returns. Diminishing returns are present if the marginal product of capital diminishes as capital increases, holding technology constant. When capital per hour of labor increases by $10 from $10 to $20, real GDP per hour of labor increases by $1.90 (from $3.80 to $5.70). But when capital per hour increases by another $10 from $20 to $30, real GDP per hour of labor increases by only $1.43 (from $5.70 to $7.13). b. Does Longland conform to the one third rule? If so, explain why. If not, explain why not and explain what rule, if any, it does conform to. The economy doe not conform to the one third rule; instead it conforms to a one half rule. In this economy, an x percent increase in capital per hour of labor leads to a 0.25 x percent increase in real GDP per hour of labor. To determine the rule in Longland, calculate the percentage change in capital per hour labor and real GDP per hour of labor at each of the levels provided in the question, and then divide the percentage change in real GDP per hour of labor by the percentage change in capital per hour of labor. For example, when capital per hour of labor increases by 100 percent from $10 to $20, real GDP per hour of labor increases by 50 percent from $3.80 to $5.70. Or when capital per hour of labor increases 50 percent from $20 to $30, real GDP per hour of labor increases by 25 percent from $5.70 to $7.13.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
c. Explain how you would do the growth accounting for Longland and calculate the effect of technological change on growth in the fourth year described above. Growth accounting would be done in qualitatively the same way as
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/14/2011 for the course ECON 103 taught by Professor Gispy during the Spring '11 term at Prairie State College .

Page1 / 13

Microsoft Word - Solution-Chapter-6 - Chapter 23 1. J p n s...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online