1. [5 Participation points] Suppose you inherit $10,000 this year and you invest it so that it grows at an average 7% every year. Consider the rule of 70. How long will it take until your investment is worth $20,000, $40,000, and $160,000? (Note: Since World War Il investments in stocks have grown at an average inflation-adjusted rate of 7%). What if instead the growth rate is 2% per year? 2. [5 participation points] During the Great Leap Forward, millions of Chinese starved to death because not enough food was produced by farmers. Why didn't farmers grow food? Was it because there wasn't enough human capital or physical capital? Explain why this policy lead to this outcome and why this example illustrates the importance of institutions for economic growth. 3. [5 participation points] Explain in your own words the causal chain of economic growth depicted in the diagram of slide 19 in the handout of section 3.1. 4. [5 participation points] Economists use the term "human capital\" to refer to education and job skills. How is education like a piece of capital? 5. [5 participation points] Economists often refer to the "natural resource curse\" by which they mean that large amounts of natural resource tend to create bad politics because as long as oil keeps flowing or diamonds remain plentiful politicians don't need to worry too much about what else goes on in the economy. Which one of the three factors of production do you think is the most important for a leader of a resource-rich country? Which one of the 5 key institutions do you think matters the most to promote economic growth in a resource-rich country? 1. |5 participation points| Real GDP per capita: Using the FRED economic data website Canada. Because France's GDP is in euros and Canada's in canadian dollars, we need to convert the currencies. In addition, we would like to compare the three GDPs for a similar basket of goods. Comparisons like these are called purchasing power parity (PPP) comparisons. After you have found the real GDP of California, click Edit Graph, then click Add Line and find the real GDP for France by typing "Expenditure-side real GDP at Chained PPP France. Then click add line again and add Canada's real GDP with a similar search prompt. What are the real GDP in 2019 of California, France and Canada (measured in 2017 USD)? What does this suggest about the role if the U.S. economy in the World? Now search, using Google, search for the populations of the these regions in 2019 and provide their real GDP per capita. 2. [10 participation points] Some people think that natural resources like minerals or oil are the way to prosperity. But natural resources have been left out completely from my lectures on economic growth. Is this a mistake? The left column of the Table below shows the 10 countries with the highest amounts of hydrocarbons (oil, natural gas, etc.) per person in rank. Use the CIA World Factboook to fill out the next column with the GDP per capita of these countries relative to the U.S. (in percentage) in any year of your choice. How many countries have a GDP per capita that is larger than the U.S.? How many have less than 50% of the U.S.? The second right-most column lists the 10 richest countries in terms of GDP per capita. There is only one country that also makes that list, which one is it? What do you think is special about out the column with the Corruption Index ranking of the Hydrocarbon rich countries and GDP per capita rich countries. Do you think that there might be a strong relation between being rich in hydrocarbons and having more corrupt governments? Why do you think that is? GDP per Hydrocarbon Corruption GDP per Corruption capita (relative Rich Index Ranking capita Rich Index Ranking to U.S.) 1 Kuwait Luxembourg United Arab 2 U.S. Emirates 3 Saudi Arabia Singapore 4 Iraq Hong Kong 5 Norway Norway 6 Venezuela Australia 7 Oman Sweden 8 Iran Canada Trinidad and 9 Denmark Tobago 10 Gabon Japan 3. [10 participation points] The diagram with the causal chain of economic growth in slide 19 of the handout of section 3.1. identifies human capital as one of the immediate causes of economic growth. Go to Gapminder.com to explore this relation. Clock on the "Resources" tab, then scroll down, and click on 'Tools". Wait a moment for the first graph to load. Then click on the axis and explore the variables available for choosing. For this problem, click on the vertical axis (keep GDP per capita on the horizontal axis) choose "Education" and "Literacy Rate, Adult".3. [10 participation points] The diagram with the causal chain of economic growth in slide 19 of the handout of section 3.1. identifies human capital as one of the immediate causes of economic growth. Go to Gapminder.com to explore this relation. Clock on the "Resources\" tab, then scroll down, and click on "Tools". Wait a moment for the first graph to load. Then click on the axis and explore the variables available for choosing. For this problem, click on the vertical axis (keep GDP per capita on the horizontal axis) choose "Education\" and "Literacy Rate, Adult". a) What is the relation between GDP per capita and education? b) Now change the vertical axes to "Mean number of Years in School" for mean older than 25 and then create a second graph for women older than 25. How does this information change what you think about the value of education? ) Finally, select "Achievement/Math Achievement 8th grade". Is this also positively related with GDP per capita