EC207 Study Guide - Final Guide: Sustainable Energy, Land Tenure, Currency Crisis

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5 May 2017

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Chapter 3b: more on growth theories (after midterm) There is a subsistence real wage rate, which is the minimum real wage rate needed to maintain life. Advances in technology lead to investment in new capital. Labour productivity increases and the real wage rate rises above the subsistence level. When the real wage rate is above the subsistence level, the population grows. Population growth increases the supply of labour and brings diminishing returns to labour. As the population increases the real wage rate falls. The population continues to grow until the real wage rate has been driven back to the subsistence real wage rate. At this real wage rate, both population growth and economic growth stop. Neoclassical growth theory is the proposition that real gdp per person grows because technological change induces a level of saving and investment that makes capital per hour of labour grow. Growth ends only if technological change stops.

Related Questions

In the economy of Cape Despair, the subsistence real wage rate is$15 an hour. whenever real GDP per hour rises above $15,t hepopulation grows, and whenever the GDP per hour of labor fallsbelow this level, the population falls. The table shows CapeDespair's production function:

Labor Real GDP
billions of hr per yr billions of 2000 dollars
_____________________________________________
0.5 8
1.0 15
1.5 21
2.0 26
2.5 30
3.0 33
3.5 35

Initially, the population of Cape Despair is constant and real GDPper hour of labor is at the subsistence level of $15. Then atechnological advance shifts the production function upward by 50percent at each level of labor.
a) What are the initial levels of real GDP and laborproductivity?
b) What happens to labor productivity immediately following thetechnological advance?
c) What happens to the population growth rate following thetechnological advance?
d) What are the eventual levels of real GDP and real GDP per hourof labor?

4. In the economy of Cape Despair, the subsistence real wage rateis $15 an hour. Whenever real GDP per hour rises above $15, thepopulation grows, and whenever real GDP per hour of labor fallsbelow this level, the population falls. The table shows CapeDespair's production function:

Labor (billions of hours per year) Real GDP (billions of 2000dollars)
0.5 8
1.0 15
1.5 21
2.0 26
2.5 30
3.0 33
3.5 35

Initally, the population of Cape Despair is constant and real GDPper hour of labor is at the subsistence level of $15. Then atechnological advance shifts the production function upward by 50percent at each level of labor.

a. What are the initial levels of real GDP and laborproductivity?

b. What happens to labor productivity immediately following thetechnological advance?

c. What happens to the population growth rate following thetechnological advance?

d. What are the eventual levels of real GDP and real GDP per hourof labor?

periwinklebutterfly241

Question 1

The law of demand states that there is a direct relationship between supply and demand.

True

False

4 points

Question 2

Equilibrium is a state of balance between supply and demand.

True

False

4 points

Question 3

Goods are scarce for both rich and poor.

True

False

4 points

Question 4

"The big corporations in this country, like ExxonMobil and GM, have deep pockets and need to be hiring more people." This is a positive statement about economic policy.

True

False

4 points

Question 5

The law of supply states that there is a direct relationship between price and quantity demanded.

True

False

4 points

Question 6

In the circular flow model, firms own economic resources, and householdsbuy the manufactured products and services.

True

False

4 points

Question 7

Households play a dual role of providing the factors of production whilepurchasing the goods and services of firms.

True

False

4 points

Question 8

Opportunity cost is the lowest valued benefit that must be sacrificed asthe result of choosing an alternative.

True

False

4 points

Question 9

Scarcity denotes that our desire for a good exceeds the amount that isfreely available from nature.

True

False

4 points

Question 10

Economics is a social science concerned with satisfying man's unlimitedwants with limited resources.

True

False

4 points

Question 11

Joint output of individuals or nations will be maximized when goods areexchanged between parties in accordance with the law of"comparative advantage".

True

False

4 points

Question 12

The production possibilities frontier assumes that the level of technologyvaries when applying the model.

True

False

4 points

Question 13

Excess demand in the market will cause the price of a product to decline.

True

False

4 points

Question 14

Demand is measured on the vertical axis and supply on the horizontalaxis.

True

False

4 points

Question 15

A change in quantity demanded is a movement along the same demandcurve.

True

False

4 points

Question 16

As globalization and world trade proliferates, individual markets withincountries' economies become more competitive.

True

False

4 points

Question 17

Which growth theory compares a subsistence real wage rate to the actual real wage rate?

		Classical growth theory
		Inflation growth theory
		Neoclassical growth theory
		New growth theory

4 points

Question 18

Suppose the working age population in Tiny Town is 100 people. If 25 of these people are NOT in the labor force, the ________ equals ________.

		unemployment rate; 25/100 Ã 100
		employment rate; 25/75 Ã 100
		labor force; 75
		labor force; 25/100 Ã 100

4 points

Question 19

Suppose there is a rise in the real wage rate. As a result, the quantity of labor demanded:

		increases.
		decreases.
		does not change because there is no change in the money wage rate.
		increases only if the price level also decreases.

4 points

Question 20

GDP can be computed as the sum of:

		all sales that have taken place in an economy over a period of time.
		the total expenditures of consumers and business over a period of time.
		the total expenditures of consumption, investment, and government expenditure on goods and services over a period of time.
		the total expenditures of consumption, investment, government expenditure on goods and services, and net exports over a period of time.

4 points

Question 21

The real wage rate equals:

		(100 x (money wage rate/price level)
		(100 x (price level/money wage rate)
		(money wage rate x (price level)
		(money wage + (number of hours worked/(price level)

4 points

Question 22

If the CPI was 121.5 at the end of 2007 and 138.3 at the end of 2008, the inflation rate over these two years was:

		10.2 percent.
		13.8 percent.
		12.2 percent.
		16.8 percent.

4 points

Question 23

A movement along the production function is the result of a change in:

		the quantity of labor.
		technology.
		capital.
		interest rates.

4 points

Question 24

All of the following are part of fiscal policy EXCEPT:

		setting tax rates.
		setting government spending.
		choosing the size of the government deficit.
		controlling the money supply.

4 points

Question 25

Along a production possibilities frontier for real GDP and the quantity of leisure time, as leisure time increases, real GDP:

		decreases.
		increases.
		stays the same.
		could increase, decrease or stay the same.

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EC207 Study Guide - Final Guide: Sustainable Energy, Land Tenure, Currency Crisis

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