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CHAPTER 8
Introduction to Economic Growth and Instability
A. Short-Answer, Essays, and Problems
1. State two definitions of economic growth.
2. Explain why even small changes in the rate of economic growth are significant. Use the "rule of
70" to demonstrate the point.
3. Which is more important — increasing inputs of resources or increasing the productivity of
those inputs — as the main source of economic growth in the United States? Explain.
4. Summarize the historical growth record of the United States over the past 50 years in terms of
real GDP growth and in terms of real GDP per capita growth.
5. What is meant by the term business cycle? List the four phases of the business cycle.
6. What phase of the business cycle is our economy experiencing at the present time? Justify
your answer.
7. “The increasing importance of durable goods has made our economy more vulnerable to
cyclical fluctuations.” Explain and evaluate.
8. Which types of industries are hit hardest by a recession? Explain.
9. If the population is 267 million, the labor force is 136 million, and the number measured as
unemployed is 6.8 million, what is the rate of unemployment?
10. Use the following data to calculate: (a) the size of the labor force and (b) the official
unemployment rate.
11. What are two criticisms of the unemployment rate? How do these criticisms relate to the
overstating or understating of the unemployment rate?
12. Explain the differences among the frictional, structural, and cyclical forms of unemployment.
Chapter 8
13. Define the “full-employment” or “natural” rate of unemployment and give its approximate
percentage rate as economists currently define it.
14. “The economic cost of unemployment is measured by the GDP gap.” Explain this statement.
15. What is Okun’s law? Give an example of how it works.
16. Discuss the unequal burden of unemployment for different demographic groups in the United
States.
17. What is “demand-pull” inflation?
18. Inflation is frequently described as “too much money chasing too few goods.” Is this an
acceptable definition?
19. “Inflation is a harsh and arbitrary form of taxation.” Do you agree? If so, who pays this tax?
20. Evaluate the statement: “Inflation only benefits the rich.”
21. Explain the difference between real and nominal income. How can you get an approximation
of the percentage change in real income from one time period to another?
22. Explain the difference between nominal and real interest rates.
23. What is hyperinflation and what are its effects?
24. What is the relationship between stock prices and macroeconomic instability?