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	______ years
1 percent	______ years
1.4 percent	______ years
2 percent	______ years
2.8 percent	______ years
3.5 percent	______ years
7 percent	______ 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

1.4 percent?	______
2.8 percent?	______
7 percent?	______

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?

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 growth	Real GDP growth per capita
An increase in population
An increase in labor force participation
An increase in population and labor force participation
An increase in current consumption
An increase in technology
An increase in illiteracy
An increase in productivity
An earlier retirement age in the country
An increase in technology and a decrease in labor force participation
An earlier retirement age and an increase in the capital stock

4. Answer the following questions about real GDP per capita.

a. If Country A had four 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 2.3 percent in Country B, how long would it take before the two countries had the same level of real GDP per capita?

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 a century?

5. Suppose that two poor countries experience different growth rates over time. Country A's real GDP per capita grows at a rate of 7 percent per year on average, and Country B's real GDP per capita grows at an 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.

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?

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?

9. Which of the following are likely to improve the productivity of labor and thereby lead to economic growth? Why?

a. on-the-job experience

b. vocational school

c. a decrease in the amount of capital per worker

d. improvements in management of resources

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?

11. Why might governments sometimes try to combat recessions by lowering interest rates?

12. What would happen to the loanable funds demand curve if new potentially profitable technologies arise and business taxes are raised at the same time?

13. What would happen to the loanable funds supply curve if there was both an increase in current disposable income and a decrease in new technologies creating investment opportunities?

14. Starting from equilibrium in the loanable funds market, what changes in loanable funds supply or demand would tend to cause a surplus of funds at the current interest rate? What changes in loanable funds supply or demand would tend to cause a shortage of funds at the current interest rate?

15. What happens to net taxes when transfer payments increase? When both taxes and transfer payments increase?

16. Which direction will an increasing budget deficit change the equilibrium interest rate, the loanable funds supply curve, the level of loanable funds in the economy, and the likely rate of economic growth, ceteris paribus?

17.

Supply of Loanable Funds Real Interest Rate Demand for Loanable Funds Quantity of Loanable Funds