Problems

27 . How might you measure a “green” GDP?

Problems

28 . Last year, a small nation with abundant forests cut down $200 worth of trees. It then turned $100 worth of trees into $150 worth of lumber. It used $100 worth of that lumber to produce $250 worth of bookshelves. Assuming the country produces no other outputs, and there are no other inputs used in producing trees, lumber, and bookshelves, what is this nation's GDP? In other words, what is the value of the final goods the nation produced including trees, lumber and bookshelves? 29 . The “prime” interest rate is the rate that banks charge their best customers. Based on the nominal interest rates and inflation rates in Table 6.10, in which of the years would it have been best to be a lender? Based on the nominal interest rates and inflation rates in Table 6.10, in which of the years given would it have been best to be a borrower? Year Prime Interest Rate Inflation Rate 1970 7.9% 5.7% 1974 10.8% 11.0% 1978 9.1% 7.6% 1981 18.9% 10.3% TABLE 6.10 30 . A mortgage loan is a loan that a person makes to purchase a house. Table 6.11 provides a list of the mortgage interest rate for several different years and the rate of inflation for each of those years. In which years would it have been better to be a person borrowing money from a bank to buy a home? In which years would it have been better to be a bank lending money? Year Mortgage Interest Rate Inflation Rate 1984 12.4% 4.3% 1990 10% 5.4% 2001 7.0% 2.8% TABLE 6.11 31 . Ethiopia has a GDP of $8 billion (measured in U.S. dollars) and a population of 55 million. Costa Rica has a GDP of $9 billion (measured in U.S. dollars) and a population of 4 million. Calculate the per capita GDP for each country and identify which one is higher. 32 . In 1980, Denmark had a GDP of $70 billion (measured in U.S. dollars) and a population of 5.1 million. In 2000, Denmark had a GDP of $160 billion (measured in U.S. dollars) and a population of 5.3 million. By what percentage did Denmark’s GDP per capita rise between 1980 and 2000? 33 . The Czech Republic has a GDP of 1,800 billion koruny. The exchange rate is 25 koruny/U.S. dollar. The Czech population is 20 million. What is the GDP per capita of the Czech Republic expressed in U.S. dollars?

FIGURE 7.1Average Daily Calorie Consumption Not only has the number of calories that people consume per day increased, so has the amount of food calories that people are able to afford based on their working wages. (Credit: modification of "Daily Calorie Intake" by Lauren Manning/Flickr Creative Commons, CC BY 2.0)

In this chapter, you will learn about:

• The Relatively Recent Arrival of Economic Growth
• Labor Productivity and Economic Growth
• Components of Economic Growth
• Economic Convergence

BRING IT HOME Calories and Economic Growth On average, humans need about 2,500 calories a day to survive, depending on height, weight, and gender. The economist Brad DeLong estimates that the average worker in the early 1600s earned wages that could afford him 2,500 food calories. This worker lived in Western Europe. Two hundred years later, that same worker could afford 3,000 food calories. However, between 1800 and 1875, just a time span of just 75 years, economic growth was so rapid that western European workers could purchase 5,000 food calories a day. By 2012, a low skilled worker in an affluent Western European/North American country could afford to purchase 2.4 million food calories per day. What caused such a rapid rise in living standards between 1800 and 1875 and thereafter? Why is it that many countries, especially those in Western Europe, North America, and parts of East Asia, can feed their populations more than adequately, while others cannot? We will look at these and other questions as we examine long-run economic growth.