Macroeconomic Essentials (Economics 1B) Unit 8
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Questions and Answers

What is the definition of economic growth?

  • The annual rate of increase in total production or income in the economy (correct)
  • The annual rate of decrease in total production or income in the economy
  • The rate of inflation in the economy
  • The rate of population growth in the economy

    • What happens when the rate of economic growth increases faster than the population growth rate?

  • There is a decrease in per capita GDP
  • The standard of living remains the same
  • There is an increase in per capita GDP (correct)
  • There is no change in per capita GDP

    • What is the term used to describe the phenomenon of a nation's production possibility frontier (PPF) shifting outward?

  • Economic development
  • Business cycle
  • Economic growth (correct)
  • Inflation

    • What is the main argument of critics of economic growth?

    <p>Economic growth destroys the environment, erodes traditional ways of living, and impoverishes the spiritual well-being of the nation</p> Signup and view all the answers

    What is the term used to describe the periodic fluctuations of national output round its long-term trend?

    <p>Business cycle</p> Signup and view all the answers

    What is the first phase of the business cycle?

    <p>The upturn</p> Signup and view all the answers

    What is the benefit of economic growth according to most economists?

    <p>It enhances the material well-being of the population</p> Signup and view all the answers

    What is the characteristic of economic growth?

    <p>It can vary significantly from year to year</p> Signup and view all the answers

    What happens to the gap between actual and potential output during the phase of rapid economic growth?

    <p>It narrows</p> Signup and view all the answers

    What is a characteristic of business cycles in practice?

    <p>They are highly irregular</p> Signup and view all the answers

    What is the major determinant of variations in the rate of actual growth in the short-run?

    <p>Variations in the growth of aggregate demand</p> Signup and view all the answers

    What happens to the rate of growth of actual output when spare capacity has been used up?

    <p>It is restricted to the rate of growth of potential output</p> Signup and view all the answers

    According to the classical view, what causes business cycles?

    <p>Exogenous disturbances outside the market system</p> Signup and view all the answers

    What is required for an increase in a society's standard of living?

    <p>An increase in aggregate output at a faster rate than the population</p> Signup and view all the answers

    What is the effect of an increase in the labour force on aggregate output?

    <p>It increases</p> Signup and view all the answers

    What is the third key factor that contributes to an increase in real per capita GDP?

    <p>An increase in productivity</p> Signup and view all the answers

    What is the term for the highest level of output that an economy can produce?

    <p>Potential output</p> Signup and view all the answers

    What is the phase of the business cycle characterized by a slowdown or cessation of growth?

    <p>The slowdown</p> Signup and view all the answers

    What happens to output per worker when the number of workers increases?

    <p>It initially increases, then decreases</p> Signup and view all the answers

    What is the consequence of diminishing returns in agriculture according to early economists?

    <p>Societal collapse and mass starvation</p> Signup and view all the answers

    What happens to labour productivity when capital increases?

    <p>It increases, but with diminishing returns</p> Signup and view all the answers

    What is human capital?

    <p>Investments made in human health, education, and training</p> Signup and view all the answers

    Why do college graduates tend to get higher incomes than those who have not attended college?

    <p>Because they tend to be more productive</p> Signup and view all the answers

    What is essential for continued economic growth?

    <p>Increases in productivity</p> Signup and view all the answers

    What is the relationship between the growth rate of equipment and the growth rate of structures in modern economies?

    <p>The growth rate of equipment is higher than the growth rate of structures</p> Signup and view all the answers

    What happens to the output of food per capita according to early economists?

    <p>It decreases over time</p> Signup and view all the answers

    What is the effect of adding more capital to a given amount of labour?

    <p>Output increases, but with diminishing returns</p> Signup and view all the answers

    What is the term for the change in output with a given increase in one input, holding the other inputs constant?

    <p>Diminishing returns</p> Signup and view all the answers

    What is the expected outcome of poverty rates in Sub-Saharan Africa by 2015?

    <p>The number of poor is expected to rise from 313 million in 2001 to 340 million</p> Signup and view all the answers

    What is a major challenge facing Sub-Saharan Africa?

    <p>High dependence on commodity exports and political instability</p> Signup and view all the answers

    What is a positive trend observed in education in Sub-Saharan Africa?

    <p>Significant enrolment increases at the primary school level</p> Signup and view all the answers

    What is a major health concern in Sub-Saharan Africa?

    <p>Severe shortage in health workers, over-reliance on donor support, chronic poor nutrition and reproductive health</p> Signup and view all the answers

    Which countries have achieved some success in reducing poverty?

    <p>Uganda, Ghana and Cameroon</p> Signup and view all the answers

    What is the average per capita growth rate expected in Sub-Saharan Africa between 2006-2015?

    <p>1.6%</p> Signup and view all the answers

    What is the expected outcome of health services in Sub-Saharan Africa over the next 20 years?

    <p>Further deterioration in health services and stagnation or worsening of health outcomes</p> Signup and view all the answers

    What is the current poverty rate in Sub-Saharan Africa?

    <p>The largest proportion of people living below $1 a day</p> Signup and view all the answers

    What is one way technological change has increased productivity?

    <p>By allowing college students to write papers more efficiently with personal computers</p> Signup and view all the answers

    What is an example of an innovation that has increased productivity in the manufacturing sector?

    <p>The development of just-in-time production techniques</p> Signup and view all the answers

    What is one benefit of economic growth?

    <p>Increased ability to buy goods and services</p> Signup and view all the answers

    What has been the result of economic growth in terms of automobile emissions?

    <p>A dramatic decrease in emissions despite an increase in kilometers driven</p> Signup and view all the answers

    What has been the trend in real per capita GDP in the USA since 1950?

    <p>More than a doubling</p> Signup and view all the answers

    What is one way that increased real per capita GDP can help those who are less fortunate?

    <p>By making it easier to spare something for them</p> Signup and view all the answers

    What is one advantage of having more savings due to economic growth?

    <p>Being able to save more money and retire earlier</p> Signup and view all the answers

    What is an example of how innovation has affected productivity in the service sector?

    <p>The development of large, multiplex movie theaters</p> Signup and view all the answers

    What is one way that economic growth has improved the quality of life?

    <p>By allowing for the ability to buy more and better products</p> Signup and view all the answers

    What has been the result of economic growth in terms of the ability to spare resources for those who are less fortunate?

    <p>An increase in the ability to spare resources</p> Signup and view all the answers

    What is a consequence of economic growth and development?

    <p>An increase in the demand for natural resources</p> Signup and view all the answers

    What is a criticism of economic development?

    <p>It leads to changes in traditional ways of living and increased environmental pressures</p> Signup and view all the answers

    What is a characteristic of developing countries?

    <p>Low levels of literacy and malnutrition</p> Signup and view all the answers

    What is economic development?

    <p>An improvement in the quality of life of the majority of the population</p> Signup and view all the answers

    What is a consequence of the improvement in machinery and transportation in modern agriculture?

    <p>A decrease in the number of smaller farms and farmers</p> Signup and view all the answers

    What is a benefit of economic growth?

    <p>A wider array of food available at lower real prices</p> Signup and view all the answers

    What is meant by absolute poverty?

    <p>A level of income that is below the minimum required to meet basic needs</p> Signup and view all the answers

    What is the main goal of economic development?

    <p>To eradicate absolute poverty</p> Signup and view all the answers

    What is the relationship between economic growth and economic development?

    <p>Economic development is a consequence of economic growth</p> Signup and view all the answers

    What is the current concern regarding economic growth and development in less developed countries?

    <p>It will lead to an increase in environmental pressures and pollution</p> Signup and view all the answers

    Study Notes

    Economic Growth and Development

    • Economic growth is the annual rate of increase in total production or income in an economy.
    • It occurs when a nation's production possibility frontier (PPF) shifts outward, resulting in an increase in per capita GDP and an improvement in the standard of living.
    • Economic growth is beneficial to a society as it enhances the material well-being of the population, but critics argue that it destroys the environment, erodes traditional ways of living, and impoverishes the spiritual well-being of the nation.

    The Business Cycle

    • The business cycle refers to the periodic fluctuations in national output around its long-term trend.
    • It has four phases: upturn, expansion, peaking out, and slowdown or recession.
    • The length and magnitude of these phases are irregular, meaning that booms and recessions can vary in duration and intensity.

    Causes of Fluctuations in Actual Growth

    • In the short-run, variations in aggregate demand (AD) are the major determinants of fluctuations in actual growth.
    • A rapid rise in AD will stimulate firms to increase output, reducing slack in the economy, while a reduction in AD will lead to reduced output.
    • In the long-run, the growth of AD and potential output determine actual growth.

    Views on Business Cycles

    • There are three views on the causes of business cycles:
      • Classical view: the economy is inherently stable, and business cycles are caused by exogenous disturbances.
      • Keynesian view: the economy is inherently cyclically unstable, and business cycles are endogenous to private market economies.
      • Structuralist view: business cycles are random occurrences.

    Sources of Economic Growth

    • An increase in the labour supply will lead to an increase in aggregate output, but may not necessarily lead to an increase in output per worker due to diminishing returns.
    • Increases in physical capital will also lead to increased output, but are subject to diminishing returns.
    • Increases in human capital, such as education and training, are crucial to economic growth and increases in productivity.
    • Technological change and innovation increase productivity and are essential for continued economic growth.

    The Pros and Cons of Growth

    • The pro-growth argument: economic growth has led to significant improvements in living standards, increased spending power, and the ability to help those less fortunate.
    • The anti-growth argument: economic growth comes with costs, such as changes in traditional ways of living, increased environmental pressures, and negative consequences for some sectors of the economy.

    Economic Development

    • Economic development refers to the improvement of living conditions in less developed countries, characterized by low per capita income, poor health, low literacy rates, and malnutrition.
    • Economic development involves economic growth, reduction of inequality, and the eradication of absolute poverty.
    • Sub-Saharan Africa is a region with significant development challenges, including slow growth, high poverty rates, and poor health outcomes.

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    Description

    This study unit discusses two essential macroeconomic concepts, economic growth and development, and their distinctions. Learn about the definitions and importance of these concepts.

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