Worksheet II.1

Long-Run Policy Models: Growth

1. The study of economic growth focuses on the factors that cause:

A.an economy to move along its production possibility curve.

B.an economy's production possibility curve to shift out.

C.an economy to move from a point inside its production possibility curve to a

point on this curve.

D.an economy's production possibility curve to shift in.

2.

a. Sketch a graph of the production possibilities curve and demonstrate your answer to Question #1. Be sure to label all parts of the graph.

b. Now EXPLAIN what causes the production possibilities curve to shift.

3.

a. If a country's population is 30 million and its GDP is $8.5 billion, its per capita output is:

per capita output per person is $283

b. Even though a higher per capita GDP is typically associated with a country doing well, does that mean output is evenly distributed among the population? Explain.

No

4.

a. Classical growth theory argued that economic growth was limited because of diminishing marginal productivity. Explain.

b. How can an economy get around diminishing marginal productivity? Explain.

5. New growth theory emphasizes the contribution of technology to growth more than Classical growth theory. When comparing to the Classical Growth Theory, how does that alter the policies for promoting growth?