Macroeconomic Essentials (Economics 1B) Unit 8

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?

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

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

Business cycle Signup and view all the answers

What is the first phase of the business cycle?

The upturn Signup and view all the answers

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

It enhances the material well-being of the population Signup and view all the answers

What is the characteristic of economic growth?

It can vary significantly from year to year Signup and view all the answers

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

It narrows Signup and view all the answers

What is a characteristic of business cycles in practice?

They are highly irregular Signup and view all the answers

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

Variations in the growth of aggregate demand Signup and view all the answers

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

It is restricted to the rate of growth of potential output Signup and view all the answers

According to the classical view, what causes business cycles?

Exogenous disturbances outside the market system Signup and view all the answers

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

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

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

It increases Signup and view all the answers

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

An increase in productivity Signup and view all the answers

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

Potential output Signup and view all the answers

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

The slowdown Signup and view all the answers

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

It initially increases, then decreases Signup and view all the answers

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

Societal collapse and mass starvation Signup and view all the answers

What happens to labour productivity when capital increases?

It increases, but with diminishing returns Signup and view all the answers

What is human capital?

Investments made in human health, education, and training Signup and view all the answers

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

Because they tend to be more productive Signup and view all the answers

What is essential for continued economic growth?

Increases in productivity 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?

The growth rate of equipment is higher than the growth rate of structures Signup and view all the answers

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

It decreases over time Signup and view all the answers

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

Output increases, but with diminishing returns 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?

Diminishing returns Signup and view all the answers

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

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

What is a major challenge facing Sub-Saharan Africa?

High dependence on commodity exports and political instability Signup and view all the answers

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

Significant enrolment increases at the primary school level Signup and view all the answers

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

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

Which countries have achieved some success in reducing poverty?

Uganda, Ghana and Cameroon Signup and view all the answers

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

1.6% Signup and view all the answers

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

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

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

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

What is one way technological change has increased productivity?

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

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

The development of just-in-time production techniques Signup and view all the answers

What is one benefit of economic growth?

Increased ability to buy goods and services Signup and view all the answers

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

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

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

More than a doubling Signup and view all the answers

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

By making it easier to spare something for them Signup and view all the answers

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

Being able to save more money and retire earlier Signup and view all the answers

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

The development of large, multiplex movie theaters Signup and view all the answers

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

By allowing for the ability to buy more and better products 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?

An increase in the ability to spare resources Signup and view all the answers

What is a consequence of economic growth and development?

An increase in the demand for natural resources Signup and view all the answers

What is a criticism of economic development?

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

What is a characteristic of developing countries?

Low levels of literacy and malnutrition Signup and view all the answers

What is economic development?

An improvement in the quality of life of the majority of the population Signup and view all the answers

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

A decrease in the number of smaller farms and farmers Signup and view all the answers

What is a benefit of economic growth?

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

What is meant by absolute poverty?

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

What is the main goal of economic development?

To eradicate absolute poverty Signup and view all the answers

What is the relationship between economic growth and economic development?

Economic development is a consequence of economic growth Signup and view all the answers

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

It will lead to an increase in environmental pressures and pollution 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.