Figure 6 31 long run economic growth c o sa a k x y a

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Chapter 4 / Exercise 25
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Figure 6-3.1 Long-Run Economic Growth C o) © SA _A K < © X Y A" C" CONSUMERGOODS --I w > W W 0 o_ !. I'.i li' ,:7. LRAS1 LRAS2 ,,==,=,=,=,=Iÿ Y* Y1 REAL GDP Does each of the following policies lead to economic growth? State yes or no and explain. 1. The government provides subsidies and tax incentives for firms to research new, more efficient, technology in production. Advanced Placement Economics Macroeconomics: Student Resource Manual © Council for Economic Education, New York, N.ÿr. 207 ?, 711 • if !1; i; ilÿ .i: ,4. I i.!:ii Iÿ ÿIL ._ !,1 1- i: 'i!ÿ :i i7 'i
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Chapter 4 / Exercise 25
Mathematical Excursions
Aufmann
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k=ÿ5,::ÿZÿ- aÿ ÿ-.-.:ÿ ÿ ÿ<÷ÿ ->%,ÿ-7ÿ'ÿ,ÿ:?:ÿ,ÿ ÿ%ÿ :5ÿ:ÿ #;Lÿ ÿg, ÿ.ÿ.ÿ?ÿ ÿ,+24-:=. ÿJ::- ÿ:ÿ:ÿ-ÿ_, ÿ._" ÿ. --ÿ: ÿ:ÿ ÿ:ÿ'ÿ ÿ ÿ ÿ ÿ ÿ ÿ: ÿ ::- ;ÿ .'ÿ:;ÿ_7ÿ/_ÿ ÿuÿ:ÿ ÿ ÿ -:ÿ ÿ.ÿ_ ÿ ÿ-ÿ ÿ:ÿr :ÿ.ÿr-ÿ-ÿZ.ÿ'ÿ-ÿ ÿ -ÿ7-ÿ-ÿ ÿ ÿ:ÿÿ' 2. With renewed emphasis on education, the nation's high school graduation rate increases from 70 percent to 85 percent, and the literacy rate rises from 98 percent to 99.5 percent. / / 3. The central bank expands the money supply in an attempt to boost spending and recover from a recession. I ,! ! i: :i i 208 -I !i 4. Because the nation is experiencing unusually low rates of spending and high unemployment, the government lowers household income tax rates and increases military spending. Government Policies to Promote Long-Run Economic Growth The key to economic growth is the productivity of the nation where productivity is commonly measured as the quantity of goods and services produced from each unit of labor. The following factors contribute to a nation's pro .ductivity, and thus its economic growth. CapitaIper worker. A country's worlfforce is more productive ff the worlfforce has more and better tools with which to work. When tools are produced as physical capital, they are themselves paired with labor to produce goods and services. Therefore, if a country invests in capital production, the country's workforce will be more productive. The thing about capital tools is that theywear out (depreciate) so they must always be replaced at a rate that outpaces the rate of depreciation. The government can promote economic growth through policies that encourage investment in physical capital. In addition to the private capital workers use to produce goods and services, a country has public capital used for production. This type of capital is known as infrastructure. Governments invest directly in physical capital by providing infrastructure such as roads, bridges, p'ower lines, and information networks. Human capitalper worker. In addition to using the physical capital tools, the worlfforce also uses its collective experience and education to produce goods and services. Human capital can be acquired through formal schooling, occupational training, or simply accumulated experience at the workplace. Human capital, like physical capital, depreciates over time. Governments promote economic growth by investing in the country's human capital, through investment in its education system.

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