Download ch 9 sp 2017

1. (p. 177) Say's Law allows growth theorists to:
A. ignore aggregate demand and focus only on aggregate supply.
Say's law states that supply creates its own demand. This law implies that whatever is produced will be
consumed, making it possible for growth theorists to ignore aggregate demand and focus only on aggregate
supply.
2. (p. 178) The Rule of 72 implies that a country with a growth rate of 6 percent will double its income in about:
C. 12 years.
The Rule of 72 says that a country's income will double in the number of years equal to 72 divided by the
country's growth rate (12 in this case.)
3. (p. 180) Economic growth through the market has:
C. helped both rich and poor.
Economic growth through the market has made all individuals better off by increasing competition, promoting
efficiency, and reducing costs.
4. (p. 182) All of the following are important sources of growth except:
D. government planning.
The five important sources of growth are (1) institutions with incentives compatible with growth; (2)
technological development; (3) available resources; (4) capital accumulation; and (5) entrepreneurship.
5. (p. 182) All of the following are important sources of growth except:
C. decreasing returns to scale.
The five important sources of growth are (1) institutions with incentives compatible with growth; (2)
technological development; (3) available resources; (4) capital accumulation; and (5) entrepreneurship.
6. (p. 184) A resource the United States lacked in the 20th Century and had to import was:
C. labor.
In the 20th Century, the United States imported people, a resource it lacked, through liberal immigration laws.
7. (p. 188) Suppose the quantities of labor, land, and capital each increase by 12 percent while output increases by
9 percent. In that case, returns to scale are:
A. decreasing.
If output rises by less than the proportion of all inputs, then decreasing returns to scale exist.
8. (p. 188) According to the Classical growth model, an economy that increases its saving will grow:
C. faster since the increase in saving will permit greater investment.
Greater saving permits higher level of investment and capital accumulation which in turn stimulate growth.
9. (p. 190) The theory of convergence argues that poor nations should, if they pursue the right policies,
B. grow faster than rich nations.
They will not converge unless they grow faster.
10. (p. 190) In the early 20th century the U.S. South was poor relative to the North. During the century the gap in
per-capita income narrowed. The process of convergence explained in the text would explain this narrowing of
the gap as due to:
B. movement of capital to the south and labor to the north.
Workers flowed north and capital south the second half of the 20th century.