Answers to Exercises

1. Growth of per capita real GDP is the better measure because if the population grows at a faster rate than real GDP, the standard of living falls.

2. GDP₁ = $1,100 GDP₂ = $1,210 GDP₃ = $1,331 GDP₄ = $1,464. Another way of stating this is

GDP_t+4 = GDP_t x (1.1)⁴

3.

Senegal grew at the fastest rate based on the rate of growth of both real GDP and real per capita GDP.

4. 4 percent = growth in total factor productivity + .7 x (2%) + .3 x (3%). Growth in total factor productivity = 4% - 1.4% - .9% = 1.7%

5. Growth rate of real GDP = 2% + .7 x (1%) + .3 x (3%) = 3.6%

6. All of the factors cited in the discussion of the U.S. productivity slowdown relate to a reduction in TFP and in the rate of growth in real GDP for the U.S. economy.

7. In the 1970s the baby boom accounted for a large infusion of less skilled workers into the labor force and had a negative impact on the rate of productivity growth. As the children of the baby boomers enter the labor force, we can look forward to another increase in the percentage of less skilled workers.

8. Because of fewer technological innovations and a shortage of capital, developing countries tend to rely on growth in their labor forces to generate economic growth. This approach leads to relatively slow economic growth over time.

9. As the population ages, the rate of labor force growth slows. This leads, everything else held constant, to slower economic growth.

10. -13.33 percent

11. 176,800 shillings

12. $1.61 billion

13. False. Japan is a good counterexample. Natural resources are but one determinant of aggregate supply. Growth in other resources and productivity increases will be sufficient to ensure a growing economy.

14. Total factor productivity (TFP) is the overall productivity of the economy in terms of the productivity of both capital and labor. Labor productivity is simply the output per unit of labor and is one element that determines TFP. Labor productivity is commonly used as an indicator of national productivity because it is more easily measured than TFP.

15. a. Productivity would rise.
b. Productivity would fall.
c. Productivity would fall.
d. Productivity would fall.

Answers to Study Guide Homework

1. a. Change in real GDP
b. Change in per capita real GDP

2. Growth is a rightward shift in AS, caused by increases in either technology or the amount and quality of resources available.

3. A drop in the quality of the U. S. labor force, a drop-off in technological innovation, increases in energy prices, shift from manufacturing to service industries.

4. Per capita GDP is growing 3% per year, so it will take 24 years to double, according to the rule of 72.

5. West Podunk's GDP is growing faster (28.7% vs. 20.6%), and its GDP per capita is higher in 1995 (10,191 vs. 9,796), but its GDP per capita is growing at a lower rate (10.8% vs. 13.7%).

Answers to Internet Exercise

This exercise explores corrupt government practices and their impact on productivity levels and economic growth. Students will determine the most and the least corrupt countries as ranked by the Internet Center for Corruption Research. It is important that students read and be familiar with the sources of data that are found on this ranking so that appropriate interpretation occurs.

Denmark

Nigeria

Belgium

This question is open-ended and will have a variety of answers.