Type: Essay Difficulty: Easy Category: Apply 2. An economy starts off with a per capita GDP of 16,000 euros. How large will the per capita GDP be if it grows at an annual rate of 3% for 10 years? 3% for 30 years? 6% for 30 years? Reference: Explanation: $21,502 $38,836 $91,896
Type: Essay Difficulty: Hard Category: Apply 3. Say that the average worker in Canada has productivity of $33 per hour while the average worker in the United Kingdom has productivity of $29 per hour (both measured in U.S. dollars). Over the next six years, say that worker productivity in Canada grows at 1% per year while worker productivity in the UK grows 3% per year. At that point, who will have the higher productivity level, and by how much? Reference: Explanation: Canada = $35.03 UK = $34.62 Type: Essay Difficulty: Hard Category: Apply 4. Some low-income countries and middle-income countries around the world have shown a pattern of economic convergence with high-income countries. What is this? Illustrate with an example. Reference: Explanation: Their economies grows faster than those of high-income countries. From 1990–2005, GDP increased by an average rate of 2.7% per year in the 1990s and 2.3% per year from 2000–2008 in the high-income countries of the world, which includes the United States, Canada, the countries of the European Union, Japan, Australia and New Zealand. Exhibit 22-7 lists 10 countries of the world which belong to an informal “fast growth club:” specifically, these countries averaged GDP growth (after adjusting for inflation) of at least 5% per year in both the time periods from 1990–2000 and from 2000– 2008. Since economic growth in these countries has been exceeding the average of the world’s high-income economies, the economies of these countries have been converging with the high-income countries. Type: Essay Difficulty: Hard Category: Apply 5. Several arguments suggest that low-income countries might have an advantage achieving greater worker productivity and economic growth in the future. Offer two such arguments and discuss their relevance. Reference: Explanation: A first argument is based on diminishing marginal returns. Even though deepening human and physical capital will tend to increase per capita GDP, the law of diminishing returns suggests that as an economy continues to increase its human and physical capital, the marginal gains to economic growth will diminish. A second argument is that low-income countries may find it easier to improve their technologies than high-income countries. Thirdly and finally, optimists argue that many countries have observed the experience of those countries that have grown more quickly and have learned from it. Moreover, once the people of a country begin to enjoy the benefits of an increased standard of living, they may be more likely to build and support the market-friendly institutions that will help provide this standard
of living. Type: Essay Difficulty: Hard Category: Understand 6. What are the three main sources for economic growth in any economy? Reference: Explanation: Technology, human capital, and physical capital Type: Essay Difficulty: Easy Category: Understand 7. Since the late 1950s, economists have performed “growth accounting” studies for countries' economies. What is the focus of these studies?