Critical Thinking Questions

capital. b. A rise in international trade. c. A trend in which many more adults participate in continuing education courses through their employers and at colleges and universities. 10 . What are the “advantages of backwardness” for economic growth? 11 . Would you expect capital deepening to result in diminished returns? Why or why not? Would you expect improvements in technology to result in diminished returns? Why or why not? 12 . Why does productivity growth in high-income economies not slow down as it runs into diminishing returns from additional investments in physical capital and human capital? Does this show one area where the theory of diminishing returns fails to apply? Why or why not?

Review Questions

13 . How did the Industrial Revolution increase the economic growth rate and income levels in the United States? 14 . How much should a nation be concerned if its rate of economic growth is just 2% slower than other nations? 15 . How is GDP per capita calculated differently from labor productivity? 16 . How do gains in labor productivity lead to gains in GDP per capita? 17 . What is an aggregate production function? 18 . What is capital deepening? 19 . What do economists mean when they refer to improvements in technology? 20 . For a high-income economy like the United States, what aggregate production function elements are most important in bringing about growth in GDP per capita? What about a middle-income country such as Brazil? A low-income country such as Niger? 21 . List some arguments for and against the likelihood of convergence.

Critical Thinking Questions

22 . Over the past 50 years, many countries have experienced an annual growth rate in real GDP per capita greater than that of the United States. Some examples are China, Japan, South Korea, and Taiwan. Does that mean the United States is regressing relative to other countries? Does that mean these countries will eventually overtake the United States in terms of the growth rate of real GDP per capita? Explain. 23 . Labor Productivity and Economic Growth outlined the logic of how increased productivity is associated with increased wages. Detail a situation where this is not the case and explain why it is not. 24 . Change in labor productivity is one of the most watched international statistics of growth. Visit the St. Louis Federal Reserve website and find the data section (http://research.stlouisfed.org). Find international comparisons of labor productivity, listed under the FRED Economic database (Growth Rate of Total Labor Productivity), and compare two countries in the recent past. State what you think the reasons for differences in labor productivity could be. 25 . Refer back to the Work It Out about Comparing the Economies of Two Countries and examine the data for the two countries you chose. How are they similar? How are they different? 26 . Education seems to be important for human capital deepening. As people become better educated and more knowledgeable, are there limits to how much additional benefit more education can provide? Why or why not? 27 . Describe some of the political and social tradeoffs that might occur when a less developed country adopts a strategy to promote labor force participation and economic growth via investment in girls’ education. 28 . Why is investing in girls’ education beneficial for growth? 29 . How is the concept of technology, as defined with the aggregate production function, different from our everyday use of the word? 30 . What sorts of policies can governments implement to encourage convergence? 31 . As technological change makes us more sedentary and food costs increase, obesity is likely. What factors do you think may limit obesity?

Problems

32 . An economy starts off with a GDP per capita of $5,000. How large will the GDP per capita be if it grows at an annual rate of 2% for 20 years? 2% for 40 years? 4% for 40 years? 6% for 40 years? 33 . An economy starts off with a GDP per capita of 12,000 euros. How large will the GDP per capita be if it grows at an annual rate of 3% for 10 years? 3% for 30 years? 6% for 30 years? 34 . Say that the average worker in Canada has a productivity level of $30 per hour while the average worker in the United Kingdom has a productivity level of $25 per hour (both measured in U.S. dollars). Over the next five years, say that worker productivity in Canada grows at 1% per year while worker productivity in the UK grows 3% per year. After five years, who will have the higher productivity level, and by how much? 35 . Say that the average worker in the U.S. economy is eight times as productive as an average worker in Mexico. If the productivity of U.S. workers grows at 2% for 25 years and the productivity of Mexico’s workers grows at 6% for 25 years, which country will have higher worker productivity at that point?