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# ECO5POE S1 2013

Chapter 20: Economic Growth
Question 1 Brazil’s real GDP was 1,360 trillion reais in 2009 and 1,434 trillion reais in 2010. Brazil’s population was 191.5 million in 2009 and 193.3 million in 2010. Calculate: a. The economic growth rate. The economic growth rate is the growth rate of real GDP. Between 2009 and 2010 this growth rate is
1434  1360 100  5.4% 1360

b. The growth rate of real GDP per person. Brazil’s population grew at
193.3  191.5 100  0.9% 191.5

Brazil’s economic growth rate is 5.4 percent, so the growth rate of real GDP per person is 5.4%0.9% = 4.5%. c. The approximate number of years it takes for real GDP per person in Brazil to double if the 2010 economic growth rate and population growth rate are maintained. Brazil’s real GDP per person is growing at 4.5 percent a year. The rule of 70 tells us that Brazil’s real GDP per person will double in 70/4.5 = 15.6 years, which rounds to 16 years.

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7%. China’s real GDP will double in 70/8.7 = 8.125 1. China’s real GDP will double in 70/11.ECO5POE S1 2013 Question 5 China’s Economy Picks Up Speed China’s trend growth rate of real GDP per person was 2.925 2. In the year to August 2009. At the one-year growth rate of 11.7 percent a year after 1980. 2009 Distinguish between a rise in China’s economic growth rate and a temporary cyclical expansion. China’s long-run economic growth has averaged 8. September 14.0 years.com.800 1. China’s output increased by 11. How long. Economic growth is the long-run growth. Real wage rate (dollars per hour) 80 70 60 50 40 30 20 Labour hours supplied 45 40 35 30 25 20 15 5 10 15 20 25 30 35 5 10 15 20 25 30 35 40 Labour hours demanded Labour (hours) Real GDP (2009/10 dollars) 425 800 1.625 1. In 2009 China’s annual growth rate was 11. It is best measured by the economy’s trend rate of growth.3 percent. The first table describes an economy’s labour market in 2010 and the second table describes its production function in 2010. Source: World Economic Outlook and FT.3 percent.3 = 6.400 1.000 2 .3%. The excess of the one-year growth rate over the long-term economic growth is probably a temporary cyclical expansion. At the long-run growth rate of 8.2 percent a year before 1980 and 8. will it take for China to double its real GDP per person? GDP growth will vary from one year to the next.7 percent since 1980.2 years. A cyclical expansion is temporary. at the current growth rate. Use the following tables to work Problems 12 to 14. the economy’s average growth.

00 per hour. The economy moves along its production function so that potential GDP increases but real GDP per person decreases. the population 3 .800. Whenever real GDP per hour rises above \$15. and whenever real GDP per hour of labour falls below this level. the production function shows that real GDP is \$1. In fact. it decreases because real GDP per person falls. the population increases and labour hours supplied increase by 10 at each real wage rate. With employment of 25 hours. With employment of 30 hours. Labour productivity = \$1. Does the standard of living in this economy increase in 2011? Explain why or why not.ECO5POE S1 2013 Question 12 What are the equilibrium real wage rate. Question 13 In 2011. the population increases and labour hours supplied increase by 10 at each real wage rate. Labour productivity = \$1. the production function shows that potential GDP is \$1.800/30 hours = \$60. Question 14 In 2011.625. Question 18 In the economy of Cape Despair. and potential GDP in 2010? The equilibrium real wage rate is \$40 per hour and the equilibrium quantity of labour employed is 25 hours.00 per hour. The standard of living does not increase. labour productivity.625/25 hours = \$65. labour productivity. the subsistence real wage rate is \$15 an hour. the population grows. and potential GDP in 2011? The equilibrium real wage rate is \$30 per hour and the equilibrium quantity of employment is 30 hours. the quantity of labour employed in 2010. What are the equilibrium real wage rate.

0 billion hours. Real GDP was \$15 billion and 1. real GDP rises to \$22.0 3. Initially. was \$15. b.50 an hour. the population of Cape Despair is constant and real GDP per hour of labour is at the subsistence level of \$15.0 2. 4 . which is defined as real GDP divided by employment. What happens to the population growth rate following the technological advance? Real GDP per hour exceeds the subsistence level of \$15.00.5 billion and employment remains at 1.5 Real GDP (billions of 2009/10 dollars) 8 15 21 26 30 33 35 a. Then a technological advance shifts the production function upward by 50% at each level of labour.5 3.0 billion hours of labour were employed. so population growth increases. Labour (billions of hours per year) 0. The table shows Cape Despair’s production function. c.00 an hour.ECO5POE S1 2013 falls.5 2.5 1. Labour productivity increases to \$22. What are the initial levels of real GDP and labour productivity? Before the technological advance. labour productivity. What happens to labour productivity immediately following the technological advance? Immediately following the technological advance.0 1.

5 billion. Real GDP will increase to \$52. Labour employment will equal 3.00. 5 . What are the eventual levels of real GDP and real GDP per hour of labour? Eventually population growth will increase labour supply so that productivity will return to its subsistence level of \$15.5 billion hours so that labour productivity equals \$15.00 an hour.ECO5POE S1 2013 d.