Why do small differences in the rate of economic growth produce large differences in the size of the economy over time? Illustrate with an example.
What will be an ideal response?
Small changes in the rate of growth can be very important. Over a period of time small changes are cumulative in the same way that compound interest payments are cumulative in a bank account. Using the rule of 70 to estimate the time it takes to double GDP, we can see that Nation A, whose growth rate is 3% takes 23 years to double its GDP, but Nation B whose growth rate is only 2% may take nearly 35 years to double its GDP.
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Refer to Figure 12-15. Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run. Which of the diagrams in the figure depicts what happens in the industry as it transitions to a long-run equilibrium?
A) Panel A B) Panel B C) Panel C D) Panel D
In the real business cycle theory, during a period when output is falling,
a. workers are voluntarily giving up their jobs. b. the quantity supplied of labor is falling. c. aggregate productivity must be falling. d. all of the above. e. none of the above.
The short-run aggregate supply curve is positively sloped because
A. some price adjustments take place in the short-run. B. complete price adjustments take place in the short-run. C. real interest rates rather than nominal rates are used. D. no price adjustments take place in the short-run.
The utility from a specific product is:
A. Determined by a consumer's income B. Determined by the price of the product C. A measure of one's preference or taste for it D. Constant as one consumes more units of it