Economic growth rate and how is it calculated

a. What is the economic growth rate and how is it calculated?
b. What is the GDP deflator and how is it calculated? Use the data in the
following table to calculate the GDP deflator for each year (values are in
billions of dollars):
Nominal GDP
$
Real GDP
$
2
0
1
4
13 377 12 959
2
0
1
5
14 029 13 206
2
0
1
6
14 292 13 162
2
0
1
7
13 939 12 703
2
0
1
8
14 527 13 088
c. Which year from 2014 to 2018 saw the largest percentage increase in the
price level as measured by the GDP deflator? Briefly explain.
7
Week 5 Growth sources and policies
1
a. Using the per-worker production function graphs below, show the effect on real
GDP per hour worked of an increase in capital per hour worked, holding
technology constant. Now, again using the per-worker production function
graph, show the effect on real GDP per hour worked of an increase in
technology, holding the quantity of capital per hour worked constant.
b. What are the consequences for economic growth of diminishing returns to
capital? How are some economies able to maintain high growth rates despite
diminishing returns to capital?
2
a. What is the new growth theory? How does the new growth theory differ from
the growth theory developed by Robert Solow?
b. Why does the economic growth model predict that poor countries should catch
up to rich countries in income per capita? Have poor countries been catching
up to rich countries?
3
a. Why are firms likely to under-invest in research and development, which slows
the accumulation of knowledge capital, slowing economic growth? Briefly
discuss three ways in which government policy can increase the accumulation
of knowledge capital.
8
b. Why does knowledge capital experience increasing returns at the economy
level while physical capital experiences decreasing returns?

  1. Why might some people in high-income countries be more concerned with
    certain negative consequences of rapid economic growth than people in lowincome countries?
  2. How might greater flexibility in labour markets and greater efficiency in financial
    markets lead to higher growth rates in real GDP per capita?

Sample Solution

ACED ESSAYS