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Chapter 10 Solutions

Chapter 10 Solutions

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Published by Madhur Tandon

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Published by: Madhur Tandon on Dec 15, 2011
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 Chapter
10Long-Run EconomicGrowth: Sources andPolicies
SOLUTIONS TO END-OF-CHAPTEREXERCISES
Chapter 10Answers to
Thinking Critically 
Questions
1.This policy would likely increase European entrepreneurship and, hence, innovation. This is because,under the current policy, entrepreneurs – or, those who wish to become entrepreneurs – have littleincentive to organize factors of production, including labor, in order to innovate and, by doing so,increase economic activity and employment in Europe.2.Government can provide the structurally unemployed retraining and educational opportunities, aswell as unemployment, childcare and healthcare benefits while these individuals develop their skillsets.
Review Questions
1.1
A country’s economic growth matters because living standards tend to rise with economicgrowth. Higher economic growth provides a country with more opportunities to improve the lives of itscitizens by, for example, increasing average life expectancy.
1.2
The total percentage increase is the percentage increase in real GDP from 1997 to 2007. It is notan annual growth rate. The average annual growth rate is the growth rate at which the value for real GDPin 1997 would have to grow on average each year to end up with the value for real GDP in 2007.
Problems and Applications
 
CHAPTER 10 (22)
|
 
Long-Run Economic Growth: Sources and Policies
1.3
The finding of the importance of market efficiency in long-run economic growth by Shiue andKeller supports North’s argument that a government can promote economic growth by protecting private property rights and wealth, as the British government did beginning with the Glorious Revolution of 1688.
200
 
CHAPTER 10 (22)
|
 
Long-Run Economic Growth: Sources andPolicies
1.4Growth RatesCountry2003200420052006AverageAnnualGrowth Rate
Australia2.67%2.80%2.41%2.63%Hungary4.984.223.884.36Poland5.263.286.104.88a. During 2004, Poland experienced the highest economic growth rate of 5.26%. b. During 2005, Hungary experienced the highest economic growth rate of 4.22%.c. Between 2004 and 2006, Poland experienced the highest average annual growth rate of 4.88%.
1.5
You will have earned more on your Lowell Bank CDs.
BankValue of CD at end of year200720082009
Andover Bank$1,020.00$1,111.80$1,222.98Lowell Bank$1,070.00$1,144.90$1,225.04
1.6YearReal GDP per capita(2000 prices)Annualgrowth rate
2002$34,861200335,3851.50%200436,4152.91200537,2412.27200638,1542.45a.The percentage increase in real GDP per capita between 2002 and 2006 was
$38,154$34,8611009.45%$34,861
 × =  
.
 b. The average annual growth rate in GDP per capita between 2002 and 2006 can be measuredas the average of the annual growth rates in the above table, which is 2.28%.
1.7
The answer depends on several factors: Whether country A sustains high rates of growth relativeto country B, on how long a period of time has passed since rapid economic growth first began in countryA, and on how long a period of time there was between rapid economic growth beginning in country Aand rapid economic growth beginning in country B. For example, the standard of living in China cancatch up with that in Japan if China continues to sustain an economic growth rate that is higher than thegrowth rate in Japan.
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