Transcript
130Miller• Economics Today, Nineteenth Edition
Chapter 9 Global Economic Growth and Development 135
Answers to Questions for Critical Analysis
Growth Rates around the World (p. 191)
“The largest change is from zero to one.” Does this statement have anything to do with relative growth rates in poorer versus richer countries?
One would expect that growth rates could be higher in poorer countries because the same absolute increase in real GDP would be a larger percentage of a poorer country’s real GDP than would be for a richer country’s real GDP.
Interpersonal Trust and Economic Growth (p. 197)
Why do you suppose that nations with higher degrees of measured distrust of strangers tend to observe lower rates of economic growth, other things being equal?
Less trust toward strangers is associated with lower teamwork productivity in businesses, leading to a nation’s lower productivity level and productivity growth.
An Annual Quota on Importing Human Capital Fills Up in a Hurry (p. 198)
Who benefits from the exclusion of skilled foreign workers?
The exclusion of skilled foreign workers benefits domestic workers who might be less skilled than those foreign workers being excluded.
A Youth Shrinkage and Aging Capital Contribute to Secular Stagnation in Japan (p. 205)
Why do you suppose that the Japanese government is contemplating a policy of encouraging retired elderly people to move to the countryside? (Hint: Where are most capital resources located?)
Most capital resources are located within cities. For this reason, the Japanese government is contemplating
a policy to encourage retired elderly people to move away from cities.
You Are There
Does More Income Inequality Necessarily Harm Economic Growth? (pp. 206–207)
1. Why does it appear to be difficult to assess whether there is a direct or inverse relationship between inequality and economic growth?
There are different factors that affect inequality and economic growth. The relationship between inequality and economic growth therefore depends on the differing effects of those factors.
2. Could higher economic growth cause greater income inequality in the near term but generate a movement toward greater income equality in the long run? Explain your reasoning.
Economic growth boosts the incomes of at least some individuals by rewarding their growth-promoting activities. Income inequality could increase as a result. In the long run, however, economic growth may also raise the incomes of lower-income households in different ways, including governmental redistributive activities. This could result in greater income equality in
the long run.
Issues and Applications
Both Quality and Quantity of Regulations Matter for Economic Growth
(pp. 207–208)
1. Why might a stringent rule that induces a few firms to reduce production be less likely to reduce economic growth rate than a less stringent but broader regulation that causes all industries to cut their production?
If a rule affects only a few firms’ production, other firms might pick up the slack in production of those affected firms. As a result of such interactions, the industry and thus the economy are less affected than a broader regulation that affects the entire industry or all industries in the economy.
2. Could one substantial regulation that affects all firms potentially cause a larger decrease in productivity growth than dozens of minor rules? Explain.
Firms are more affected by large changes in regulations than minor ones. For this reason, one substantial regulation that affects all firms could potentially cause a larger decrease in productivity growth than dozens of minor rules.
Research Project
1. For rankings of nations based on the degree of competitiveness attained in light of flexibility that governments permit for their economies, see the Web Links in MyEconLab.
2. To view the World Bank’s latest “Doing Business” rankings, see the Web Links in MyEconLab.
Answers to Problems
9-1. The graph to the right shows a production possibilities curve for 2020 and two potential production possibilities curves for 2021, denoted 2021A and 2021B.
a. Which of the labeled points corresponds to maximum feasible 2020 production that is more likely to be associated with the curve denoted 2021A?
b. Which of the labeled points corresponds to maximum feasible 2020 production that is more likely to be associated with the curve denoted 2021B?
a. Y
b. X
9-2. A nation’s capital goods wear out over time, so a portion of its capital goods become unusable every year. Last year, its residents decided to produce no capital goods. It has experienced no growth in its population or in the amounts of other productive resources during the past year. In addition, the nation’s technology and resource productivity have remained unchanged during the past year. Will the nation’s economic growth rate for the current year be negative, zero, or positive?
The nation’s stock of capital goods will shrink because of depreciation, so its rate of economic growth will be negative.
9-3. In the situation described in Problem 9-2, suppose that vocational training during the past year enables the people of this nation to repair all capital goods so that they continue to function as well as new. All other factors are unchanged, however. In light of this single change to the conditions faced in this nation, will the nation’s economic growth rate for the current year be negative, zero, or positive?
The nation will maintain its stock of capital goods at its current level, so its rate of economic growth will be zero.
9-4. Consider the following data. What is the per capita real GDP in each of these countries?
Population Real GDP
Country (millions) ($ billions)
A 10 55
B 20 60
C 5 70
a. $5,500 per capita
b. $3,000 per capita
c. $14,000 per capita
9-5. Suppose that during the next 10 years, real GDP triples and population doubles in each of the nations in Problem 9-4. What will per capita real GDP be in each country after 10 years have passed?
a. $8,250 per capita
b. $4,500 per capita
c. $21,000 per capita
9-6. Consider the following table displaying annual growth rates for nations X, Y, and Z, each of which entered 2017 with real per capita GDP equal to $20,000.
Annual Growth Rate (%)
Country 2017 2018 2019 2020
X 7 1 3 4
Y 4 5 7 9
Z 5 5 3 2
a. Which nation most likely experienced a sizable earthquake in late 2017 that destroyed a significant portion of its stock of capital goods, but was followed by speedy investments in rebuilding the nation’s capital stock? What is this nation’s per capita real GDP at the end of 2020, rounded to the nearest dollar?
b. Which nation most likely adopted policies in 2017 that encouraged a gradual shift in production from capital goods to consumption goods? What is this nation’s per capita real GDP at the end of 2020, rounded to the nearest dollar?
c. Which nation most likely adopted policies in 2017 that encouraged a quick shift in production from consumption goods to capital goods? What is this nation’s per capita real GDP at the end of 2020, rounded to the nearest dollar?
a. X; $23,153
b. Z; $23,166
c. Y; $25,472
9-7. Per capita real GDP grows at a rate of 3 percent in country F and at a rate of 6 percent in country G. Both begin with equal levels of per capita real GDP. Use Table 9-3 on page 203
to determine how much higher per capita real GDP will be in country G after 20 years. How much higher will real GDP be in country G after 40 years?
1.77 times higher after 20 years, calculated by dividing the factor 3.20 at a 6% rate by the factor 1.81 at a 3% rate; 3.16 times higher after 40 years, calculated by dividing the factor 21.70 at a 6% rate by the factor 3.26 at a 3% rate.
9-8. Since the early 1990s, the average rate of growth of per capita real GDP in Mozambique
has been 3 percent per year, as compared with a growth rate of 8 percent in China. Refer to Table 9-3. If a typical resident of each of these nations begins this year with a per capita real GDP of $3,000 per year, about how many more dollars’ worth of real GDP per capita would the person in China be earning 10 years from now than the individual in Mozambique?
$2,460.
9-9. On the basis of the information in Problem 9-10 and reference to Table 9-3, about how many more dollars’ worth of real GDP per capita would the person in China be earning 50 years from now than the individual in Mozambique?
After 50 years, real GDP per capita in China will equal $3,000 times 46.90, or $140,700. Real GDP per capita in Mozambique will equal $3,000 time 4.38, or $13,140. Thus, in China real GDP per capita will be $127,560 higher.
9-10. In 2018, a nation’s population was 10 million. Its nominal GDP was $40 billion, and its price index was 100. In 2019, its population had increased to 12 million, its nominal GDP had risen to $57.6 billion, and its price index had increased to 120. What was this nation’s economic growth rate during the year?
The nation’s per capita real GDP was $4,000 in 2018 and 2019. Its rate of economic growth was zero percent.
9-11. Between the start of 2018 and the start of 2019, a country’s economic growth rate was 4 percent. Its population did not change during the year, nor did its price level. What was the rate of increase of the country’s nominal GDP during this one-year interval?
The rate of growth of per capita real GDP equals the rate of growth of real GDP (4 percent) less the rate of population growth (0 percent), which equals 4 percent.
9-12. In 2018, a nation’s population was 10 million, its real GDP was $1.21 billion, and its GDP deflator had a value of 121. By 2019, its population had increased to 12 million, its real GDP had risen to $1.5 billion, and its GDP deflator had a value of 125. What was the percentage change in per capita real GDP between 2016 and 2017?
0 percent
9-13. A nation’s per capita real GDP was $2,000 in 2017, and the nation’s population was 5 million in that year. Between 2017 and 2018, the inflation rate in this country was 5 percent, and the nation’s annual rate of economic growth was 10 percent. Its population remained unchanged. What was per capita real GDP in 2018? What was the level of real GDP in 2018?
Per capita real GDP in 2018 was 10 percent higher than in 2017, or $2,200. The level of real GDP is $2,200 per person × 5 million people = $11 billion.
9-14. Brazil has a population of about 200 million, with about 145 million over the age of 15. Of these, an estimated 25 percent, or 35 million people, are functionally illiterate. The typical literate individual reads only about two nonacademic books per year, which is less than half the number read by the typical literate U.S. or European resident. Answer the following questions solely from the perspective of new growth theory:
a. Discuss the implications of Brazil’s literacy and reading rates for its growth prospects in light of the key tenets of new growth theory.
b. What types of policies might Brazil implement to improve its growth prospects? Explain.
a. New growth theory emphasizes the importance of human capital as a key facet of economic growth. Brazil’s relatively lower literacy rate suggests that it is lagging in human capital development and hence potential for longer-term economic growth.
b. Policies might include programs narrowly focused on promoting a higher literacy rate and broadly focused on a greater average educational attainment by its residents.
9-15. Based on data in Table 9-1 and the rule of 70, if U.S. per capita real GDP continues to grow at the average rate it has experienced since 1990, about how many years will be required for it to double?
According to the rule of 70, the number of years required for a doubling of U.S. per capita real GDP at the current average growth rate of 1.5 percent will be equal to approximately 47 years. (70/1.5 = 47.)
9-16. Based on data in Table 9-1 and the rule of 70, if India’s per capita real GDP continues to grow at the average rate it has experienced since 1990, about how many years will be required for it to double?
According to the rule of 70, the number of years required for a doubling of U.S. per capita real GDP at the current average growth rate of 4.5 percent will be equal to approximately 16 years. (70/4.5 = 15.6.)
9-17. Based on data in Table 9-1 and in Table 9-3, if china's per capita real GDP continues to grow at the average rate it has experienced since 1990, will its per capita real GDP be twice as high as it is today within a decade? Explain your reasoning.
Table 9-1 reports an 8.1 percent average annual growth rate since 1990. Table 9-3 indicates that at an 8 percent annual growth rate, China’s per capita real GDP will double in 9 years. The doubling would occur a little faster an 8.1 percent annual rate of growth, so certainly China’s per capita real GDP would double within a decade at this annual growth rate.
9-18. Consider Figure 9-7, and suppose that we round the rate of growth of per capita real GDP experienced in the European Union between 1981 and 1990 to the nearest full percentage point. Based on the information in Table 9-3, by what percentage would per capita real GDP have increased between 1990 and 2020 if the economic growth rate will have remained at this rounded level?
Figure 9-7 indicates that the rounded average growth rate of per capita real GDP in the European Union between 1981 and 1990 was 6 percent. According to Table 9-3, over the 30 years between 1990 and 2020, at this rounded growth rate, per capita real GDP will have risen by 5.74 times, or by 474 percent.
9-19. Consider Figure 9-7, and suppose that we round the rate of growth of per capita real GDP experienced in the European Union between 2001 and 2017 to the nearest full percentage point. Based on the information in Table 9-3, by what percentage will per capita real GDP increased over the next 30 years if the economic growth rate remains at this rounded level?
Figure 9-7 indicates that the rounded average growth rate of per capita real GDP in the European Union between 2001 and 2017 was 1 percent. According to Table 9-3, over the next 30 years, at this rounded growth rate, per capital real GDP will have risen by 1.34 times, or by 34 percent.
9-20. Consider Figure 9-8, According to the rule of 70, about how many years would have been required for U.S. per capita real GDP to double if it had remained at the average level observed between 1961 and 1980? Between 2001 and 2017?
At the 1961-1980 average growth rate of 2.5 percent, the number of years required for per capita real GDP to double would have been about 28. (70/2.5 = 28.) At the 2001-2017 average growth rate of 1 percent, the number of years required would be 70. (70/1 = 70.)
Selected References
Adelman, Morris A. et al., No Time to Confuse, San Francisco Institute for Contemporary Studies, 1975.
Beckerman, Wilfred, In Defense of Economic Growth, London: Jonathan Cape, 1974.
Denison, E.F., Accounting for Slower Growth, Washington, D.C.: The Brookings Institute, 1979.
Kuznets, Simon, Six Lectures on Economic Growth, New York: Free Press, 1959.
Mishan, E.J., The Cost of Economic Growth, New York: Praeger, 1967.
Olson, Mancur and Hans H. Landsberg, eds., The No-Growth Society, New York: W.W. Norton and Company, 1973.
Phelps, Edmund S., ed., The Goal of Economic Growth, New York: Norton, 1962.
Schumacher, E.F., Small Is Beautiful, New York: Harper and Row, 1973.
Schumpeter, Joseph A., Theory of Economic Development, Cambridge: Harvard University Press, 1934.
Simon, Julian L., “Resources, Population, and Environment: An Oversupply of False Bad News,” Science, June 27, 1980.
Simon, Julian L., The Ultimate Resource, Princeton, NJ: Princeton University Press, 1980.
Solow, Robert M., “A Contribution to the Theory of Economic Growth,” The Quarterly Journal of Economics, Vol. LXX, February 1956, pp. 65–94.
Thurow, Lester C., The Zero Sum Society, New York: Basic Books, 1980.
