Download E-Growth Exercise #4

Course
Course Number
University or College
Professor’s Name
E-Growth Exercise #4 (
Student Name: ________________________
Section: ______________________________
points)
Please limit your answers to the spaces provided. If necessary, write on the back of the page.
Do not attach printout or additional pages. All questions pertain to the E-Growth module in the
SimEcon® software package.
Make sure that you have read the “E-Growth Manual” and “SimEcon® Operation
Instructions.” These materials may be found at the Class Web site prior to beginning the
exercise. For many of the exercise’s questions, it will be necessary to refer to those instructions.
For many of the exercise’s questions, it will be necessary to refer to your text.
Open the E-Growth Module of SimEcon®. You will see a table entitled, “Initial State of Your
Society -- Generation 0.” Write down the values for the initial parameters below:
Population:
Real GDP:
Consumption Spending:
Investment Spending:
Public Goods Spending:
__________
__________
__________
__________
__________
Click “Continue.” You will see a table for “Social Variables”. Enter 23 years as the age of first
marriage, 1.9 children and 0.12 spent on research and development. Click “Continue.” You will
see a table for “Economic Variables”. Enter $13 billion for investment and $19 billion for public
goods. Click “Continue.” Fill in the table below:
Change in Population:
Real GDP:
Real GDP Per Capita:
Real Capital Stock:
__________
__________
__________
__________
What is real GDP? ____________________________________________________________
________________________________________ . What is the difference between real GDP
and real GDP per capita?
__________________________________________________.
Suppose that over a period of 10 years real GDP of a given nation doubled and the population
over that same time period tripled. Would real GDP per capita increase, decrease or remain the
same? ______________________________
. Which statistic is a truer measure of the real
standard of living for a given nation? __________ .
Given the information in the above tables, what is the percentage growth rate (or decline) of real
GDP? ____________________. What is the percentage growth rate or decline of real GDP per
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E-Growth Exercise #4
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capita? ____________________. Has the standard of living improved or gotten worse or
stayed the same in this nation? ____________________.
How did the change in the age of first marriage affect this? __________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
__________________________________
How did the change in research and development spending affect the standard of living? _____
______________________________________________________________________________
_________________________________________________________
How did the change in investment spending affect the standard of living ____________
______________________________________________________________________________
__________________________________________________.
How did the change in public goods spending affect the standard of living? __________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
_____________________________________________________________________________.
Click “Continue.” You will see a table titled, “Economic Variables.” Enter the following
amounts: (1) Investment Spending -- $9 billion; and (2) Public Goods Spending -- $16 billion.
Note that your values for social variables will remain the same as the last generation. Click
“Continue.” Fill in the amounts for the table below:
Change in Population:
Real GDP:
Real GDP Per Capita:
Real Capital Stock:
__________
__________
__________
__________
Compared to the last generation, have the amounts spent on investment and public goods
increased, decreased or remained the same? __________. What is the new percentage rate of
growth or decline in real GDP? (Calculate from the first generation to this one.) ____ ______
How did the changes in investment and public goods spending cause this new growth rate or
decline? _________________________________________________________________ ___
______________________________________________________________________________
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______________________________________________________________________
____
__________________________________________________________________. What is the
new percentage rate of growth or decline in real GDP per capita? (Calculate from the last
generation to this one.) ____________________. Why did real GDP decline while real per
capita GDP increased? __________________________________________________ ______
________________________________________________________________
Click “Reset All Variables.” You will go back to the table titled “Social Variables.” Suppose
that this country enacted strict measures to control population growth and industrialize the
economy. For example, China limits all couples to only one child per family. A couple will face
strict legal sanctions if they try to have more than one child. Suppose also that in our nation no
one was allowed to marry before a certain age.
Enter these amounts for the social variables: (1) Age of Marriage -- 25 years; (2) Number of
Children -- 1.75; and (3) Percentage Spent on R & D -- 0.16. Click “Continue.” Use the default
variables for the economic variables: (1) Investment Spending -- $12 billion; and (2) Public
Goods Spending -- $18 billion. Click “Continue.” Fill in the amounts for the table below:
Change in Population:
Real GDP:
Real GDP Per Capita:
Real Capital Stock:
__________
_________
__________
_________
Compared to the last generation, what was the percentage growth rate of real GDP? __________
__________. Compared to the last generation, what was the percentage growth rate of real GDP
per capita? ______________________________. Considering economic growth, would you
refer to this situation as a depression, a recession, stagnation or prosperity? __________. Would
you refer to this nation as impoverished, stagnant or rapid growth? ____________________
__________. Disregarding the political measures discussed earlier and considering only the rate
of economic growth, which of the following five nations would provide a good example of the
above situation? (1) the United States; (2) Great Britain; (3) Bangladesh; (4) South Korea; or (5)
Central African Republic. __________________________________________________ ___
__ _ ______________.
Click “Reset All Variables.” Now, suppose that this nation imposed even more draconian
measures to increase economic growth. Enter the following social variables: (1) Age of
Marriage -- 40; (2) Number of Children -- 1.75; and (3) Percentage Spent on R & D -- 0.20.
Click “Continue.” Enter the following economic variables: (1) Investment Spending -- $35
billion; and (2) Public Goods Spending -- $35 billion.
Change in Population:
Real GDP:
Real GDP Per Capita:
Real Capital Stock:
__________
________
__________
_________
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Compared to the last generation, what was the percentage growth rate of real GDP? _______
_____________. Compared to the last generation, what was the percentage growth rate of real
GDP per capita? ______________________________. Would it be correct to say that in this
generation real GDP per capita almost tripled? ___ (Yes, No). Looking at the above situation,
what are the major drawbacks in terms of to living in a society such as this? (Consider marriage,
population growth, military power and the age distribution of the population.) __________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
____________________________________________________.
Click “Continue.” You will see the table titled “Economic Variables.” Accept the default
amounts: (1) Investment Spending -- $12 billion; and (2) Public Goods Spending -- $18 billion.
The social variables will remain the same. Click “Continue” to get “Generation 5 Results.”
Click “Continue” two more times to get “Generation 6 Results.” This will also use the same
social and economic variables. Now, click “Graph.” This will produce a graph of the economic
growth of this nation over all six generations. Draw this graph below.
Why did the per capita GDP grow slowly over the first few generations and why did per capita
GDP grow so rapidly over the last generations? ______________________________ ___
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
_______________________.
In the E-Growth module of the SimEcon® program, growth in population seems to be inversely
related to changes in per capita GDP. In the 19th century, an economist named Malthus predicted
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that world population would grow at a geometric pace while agricultural production would
only grow at an arithmetic (slower) pace. He predicted that because of this after several
generations, most of the world’s population would be impoverished. Did his ideas prove correct
or incorrect? _________. Why? __________________________________________________
______________________________________________________________________________
________________________________________________________________________ .
What might be some of the advantages of increasing population in terms of the labor force ____
________________________________________________________ .
Considering the population decline in Generation 4, how would that affect the size of the
workforce? ______________________________. How would that affect the supply and/or
demand for labor? ______________________________. Other things being equal, how would
that impact the equilibrium wage?
________________________________________
__________________________________________________. Finally, how would that change
in the wage rate affect the workers’ real incomes, other things being equal? __________ __
__________________.