1. Why did the classical macroeconomic school of thought lose its credibility during the 1930s?

2. Explain the monetarist school of thought to macroeconomic theory.

3. Explain today's consensus of the school of thought behind the macroeconomic theory.

Production function		Labor market
Labor hours (millions)	Real GDP (millions of 2009 dollars)		Real wage rate (dollars per hour)	Quantity of labor demanded	Quantity of labor supplied
0	0		(millions of hours per year)
1	10		10	1	5
2	19		9	2	4
3	27		8	3	3
4	34		7	4	2
5	40		6	5	1

Use the information set out in the tables above about the economy of Athabasca to work Problems 4 and 5.

4. Calculate

a. the quantity of labor employed,

b. the real wage rate, and

c. potential GDP. (Remember the law of supply and demand and equilibrium - where the quantity supplied is = to the quantity demanded - find this equilibrium point to get quantity, and then follow it across the table to calculate real wage rate and potential GDP).

5. If the labor force participation increases, explain how employment, the real wage rate, and potential GDP change.

6. In 2005 and 2006, India's real GDP grew by 9.2 percent a year and its population grew by 1.6 percent a year. If these growth rates are sustained, in what years would

• Real GDP be twice what it was in 2006?(Use the Rule of 70 pg. 457)
• Real GDP per person be twice what it was in 2006?(Again, use the Rule of 70, but be sure to subtract the population growth first before calculating how long it would take real GDP per person to double. Good example on pg. 459 #'s 1 & 2)

7. Even though saving and investment in additional capital is a source of labor productivity growth, without the expansion of human capital and technological change, it would not bring sustained economic growth. Eventually growth would slow and most likely stop. Why? Explain your answer fully.

8. Look at Figure 17.5 pg. 465 (also in lecture) and explain in detail why real GDP per hour of labor increases from: $40 to $80 per hour of labor.

9. What characterized the economy of the "booming Sixties"?

10. What caused the economic stagnation of the1970's?

11. This entire chapter details the importance of economic growth. Give me 4 examples of how the factors used for economic growth (jobs, infusion of capital, technology) have affected you personally.

12. Assume you work 40 hrs. per week at a wage rate of $40 per hour. Your employer offers you a choice: stay at 40 hrs. a week at $40 per hour or increase your productivity by working a 75 hour week (15 hrs. per day) at a pay rate of $100 per hour. Tell us about your decision and explain fully why this is your choice.

13. Technology has certainly been a huge contributor to labor productivity and in turn standards of living over the past 30 years. Identify at least 2 negative effects because of increased technology (computers, communication, cell phones, internet, mass production etc.). Briefly explain why you've chosen these two.

14. You are spending quite a bit of money to earn your college degree. Assume that for a 4-year degree you spend $100,000 on your education. That's $100,000 that you could have spent on something else (opportunity cost). At this time, do you feel that this money could have been spent more effectively elsewhere, or do you feel that this $100,000 investment will more than pay for itself over the long run? Explain your answer in detail to give us an idea of your reasoning.

15. When you look at "Eye on Rich and Poor Nations" pg. 475 we can see that there is fairly stagnant growth in the poorer nations such as Eastern Europe, Central and South America, and Africa. Do you feel that we, as the richest nation have a moral obligation to invest capital, labor, and technology in these poorer countries in order to enhance their economic growth in terms of real GDP per person? Explain to us your response.

Chapter 17 . Potential GDP and Economic Growth 457 EYE on the PAST possibilities. How Fast Has Real GDP per Person Grown? a poor nation orea, Taiwan, If you're a middle-class American , you nce of growth know what life is like in a household Real GDP per person (2015 dollars; ratio scale) fate of Sierra that spends ( at least ) $150 a day . Try to imagine life with only $ 1 a day to 16,000 . . .. . .. s during the spend. That is the amount that a billion 8,000 . . . .. a temporary people in today's world struggle to live 4,000 . . . . . . . . on. It is also the amount that our an- . . . . Pilgrim Fathers .Industrial 2,000 . . . . arrive in America Revolution cestors lived on for the first million . . . . . . . .. . . . . . .. . 1,000 . . . Ancient years of human existence. Decline Greece of Rome . . . . . . Black The figure shows estimates of in- Death Y . . ... .. . . . .. . 500 . . . . . . . . . . . . . . . . . . . . . . . . . .... ange of real . . . . . . . . . . . . . . .... . . . . . . . . comes (real GDP per person) over 250 . . . . . . . . . . . . . ................................ more than a million years expressed . . . . .; . . . . . . . .... in the value of the dollar in 2015. Real 1,000,000BC 500BC 400 1340 1620 1750 2050