Chapter 20:
1. a. According to the Rule of 70, how many years will it take a country to double its output at each of the
following annual growth rates?
0.5 percent: _140__ years
b. If a country has $100 billion of real GDP today, what will its real GDP be in 50 years if it grows at an
annual growth rate of
2. Answer these questions about GDP:
a. How could real GDP grow, while, over the same period, real GDP per capita falls?
b. If Country A has a 4 percent annual growth rate of real GDP and a 2 percent annual rate of population
growth, while Country B has a 6 percent annual growth rate of real GDP and a 5 percent annual rate of
population growth, which country will have a higher growth rate of real GDP per capita?
Answer: Country A has a higher real per capita GDP growth rate of 2% (4 percent real
3. In which direction would the following changes alter GDP growth and per capita GDP growth in a
country (increase, decrease, or indeterminate), other things being equal?
Real GDP Real GDP
Growth Growth per Capita
An increase in labor force participation
An increase in population and labor force
participation increase increase
4. Answer the following questions about real GDP per capita:
a. If Country A had 4 times the initial level of real GDP per capita of Country B and it was growing at 1.4
percent a year, while real GDP was growing at 2.8 percent in Country B, how long would it take before
the two countries had the same level of real GDP per capita?
Answer:
b. If two countries had the same initial level of real GDP per capita, and Country A grows at 2.8 percent,
while Country B grows at 3.5 percent, how will their real per capita GDP levels compare at the end of the
century?
Answer:
5. Suppose that two poor countries experience different growth rates over ti
capita grows
average annual rate of only 3 percent. Predict how the standard of living will vary between these two
countries over time as a result of divergent growth rates.
Answer: Real GDP per capita provides one measure of the standard of living in a country.
6. Could a country experience a fall in population and a rise in real GDP at the same time? Could an
increase in labor force participation allow that?
Answer: If real per capita GDP rose faster than population shrank, real per capita GDP
7. What is the difference between labor and human capital? How can human capital be increased?
8. Would a shift from investment in capital goods to investment in education increase or decrease the
growth rate of real GDP per capita?
Answer: It depends. Both capital investment and human capital investment increase
9. Which of the following are likely to improve the productivity of labor and thereby lead to economic
growth and why?
a. on-the-job experience improve
10. What is the implication about economic growth for an economic system with weak enforcement of
patent and copyright laws? Why does weak property rights enforcement create an incentive problem?
Answer: When patents and copyrights are only weakly enforced, it reduces the incentive
11. How could permanently lower marginal tax rates increase the capital stock, the level of education, the
level of technology, and the amount of developed natural resources over time?
Answer: Permanently lower marginal tax rates would increase the after-tax rate of return