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d. In the long run, a higher saving rate leads to a higher level of productivity
and income, but not to higher growth rates in these variables.
2. An important implication of diminishing returns is the catch-up effect.
a. Definition of catch-up effect: the property whereby countries that start off
poor tend to grow more rapidly than countries that start off rich.
b. When workers have very little capital to begin with, an additional unit of
capital will increase their productivity by a great deal.
C. Investment from Abroad
1. Saving by domestic residents is not the only way for a country to invest in new
capital.
2. Investment in the country by foreigners can also occur.
a. Foreign direct investment occurs when a capital investment is owned and
operated by a foreign entity.
b. Foreign portfolio investment occurs when a capital investment is financed with
foreign money but operated by domestic residents.
3. Some of the benefits of foreign investment flow back to foreign owners. But the
economy still experiences an increase in the capital stock, which leads to higher productivity and higher wages.
4. The World Bank is an organization that tries to encourage the flow of investment
to poor countries.
a. The World Bank obtains funds from developed countries such as the United States
and makes loans to less-developed countries so that they can invest in roads, sewer systems, schools, and other types of capital.
b. The World Bank also offers these countries advice on how best to use these
funds.
D. Education
1. Investment in human capital also has an opportunity cost.
a. When students are in class, they cannot be producing goods and services for
consumption.
b. In less-developed countries, this opportunity cost is considered to be high; as
a result, children often drop out of school at a young age.
2. Because there are positive externalities in education, the effect of lower
education on the economic growth rate of a country can be large.
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3. Many poor countries also face a “brain drain”—the best educated often leave to
go to other countries where they can enjoy a higher standard of living.
E. Health and Nutrition
1. Human capital can also be used to describe another type of investment in people:
expenditures that lead to a healthier population.
2. Other things being equal, healthier workers are more productive.
3. Making the right investments in the health of the population is one way for a
nation to increase productivity.
F. Property Rights and Political Stability
1. Protection of property rights and promotion of political stability are two other
important ways that policymakers can improve economic growth.
2. There is little incentive to produce products if there is no guarantee that they
cannot be taken. Contracts must also be enforced.
3. Countries with questionable enforcement of property rights or an unstable
political climate will also have difficulty in attracting foreign (or even domestic) investment.
4. In the News: Does Food Aid Help or Hurt?
a. Economic policies designed to improve productivity sometimes have adverse
unintended effects.
b. This article from The Wall Street Journal, Real Time Economics blog discusses
economic research on the effects of food aid to poor countries on armed conflict in a recipient country.
G. Free Trade
1. Some countries have tried to achieve faster economic growth by avoiding
transacting with the rest of the world.
2. However, trade allows a country to specialize in what it does best and thus
consume beyond its production possibilities.
3. When a country trades wheat for steel, it is as well off as it would be if it had
developed a new technology for turning wheat into steel.
4. The amount a nation trades is determined not only by government policy but also by
geography.
a. Countries with good, natural seaports find trade easier than countries without
this resource.
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b. Countries with more than 80 percent of their population living within 100
kilometers of a coast have an average GDP per person that is four times as
large as countries with less than 20 percent of their population living near a coast.
H. Research and Development
1. The primary reason why living standards have improved over time has been due to
large increases in technological knowledge.
2. Knowledge can be considered a public good.
3. The U.S. government promotes the creation of new technological information by
providing research grants and providing tax incentives for firms engaged in research.
4. The patent system also encourages research by granting an inventor the exclusive
right to produce the product for a specified number of years.
I. Population Growth
1. Stretching Natural Resources
a. Thomas Malthus (an English minister and early economic thinker) argued that an
ever-increasing population meant that the world was doomed to live in poverty forever.
b. However, he failed to understand that new ideas would be developed to increase
the production of food and other goods, including pesticides, fertilizers, mechanized equipment, and new crop varieties.
2. Diluting the Capital Stock
a. High population growth reduces GDP per worker because rapid growth in the
number of workers forces the capital stock to be spread more thinly.
b. Countries with a high population growth have large numbers of school-age
children, placing a burden on the education system.
3. Some countries have already instituted measures to reduce population growth rates.
4. Policies that foster equal treatment for women should raise economic opportunities
for women leading to lower rates of population.
5. Promoting Technological Progress
a. Some economists have suggested that population growth has driven technological
progress and economic prosperity.
b. In a 1993 journal article, economist Michael Kremer provided evidence that
increases in population lead to technological progress.
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Start a class discussion of the trade-offs that are necessary to sustain economic growth. Point out that current consumption must be forgone for higher consumption in the future. Ask students to examine the trade-offs involved with each of the public policies discussed. J. In the News: One Economist’s Answer
1. Why do some nations thrive while others do not?
2. This article by economist Daron Acemoglu provides his ideas on the answers to this
question.
SOLUTIONS TO TEXT PROBLEMS:
Quick Quizzes
1. The approximate growth rate of real GDP per person in the United States is 1.77
percent (based on Table 1) from 1870 to 2010. Countries that have had faster
growth include Japan, Brazil, Mexico, China, Germany, and Canada; countries that have had slower growth include Argentina, India, United Kingdom, Indonesia, Pakistan, and Bangladesh.
2. The four determinants of a country’s productivity are: (1) physical capital,
which is the stock of equipment and structures that are used to produce goods and services; (2) human capital, which is the knowledge and skills that workers
acquire through education, training, and experience; (3) natural resources, which are inputs into production that are provided by nature, such as land, rivers, and mineral deposits; and (4) technological knowledge, which is society’s understanding of the best ways to produce goods and services.
3. Ways in which a government policymaker can try to raise the growth in living
standards in a society include: (1) investing more current resources in the production of capital, which has the drawback of reducing the resources used for producing current consumption; (2) encouraging investment from abroad, which has the drawback that some of the benefits of investment flow to foreigners; (3) increasing education, which has an opportunity cost in that students are not engaged in current production; (4) protecting property rights and promoting political stability, which has the drawback of enforcement costs; (5) pursuing outward-oriented policies to encourage free trade, which may have the drawback of making a country more dependent on its trading partners; (6) reducing the rate of population growth, which may have the drawbacks of reducing individual freedom and lowering the rate of technological progress; and (7) encouraging research and development, which (like investment) may have the drawback of reducing current consumption.
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Questions for Review
1. The level of a nation’s GDP measures both the total income earned in the economy
and the total expenditure on the economy’s output of goods and services. The level of real GDP is a good gauge of economic prosperity, and the growth rate of real GDP is a good gauge of economic progress. You would rather live in a nation with a high level of GDP, even though it had a low growth rate, than in a nation with a low level of GDP and a high growth rate, because the level of GDP is a measure of prosperity.
2. The four determinants of productivity are: (1) physical capital, which is the
stock of equipment and structures that are used to produce goods and services; (2) human capital, which consists of the knowledge and skills that workers acquire through education, training, and experience; (3) natural resources, which are inputs into production that are provided by nature; and (4) technological
knowledge, which is society’s understanding of the best ways to produce goods and services.
3. A college degree is a form of human capital. The skills learned in earning a
college degree increase a worker's productivity.
4. Higher saving means fewer resources are devoted to consumption and more to
producing capital goods. The rise in the capital stock leads to rising
productivity and more rapid growth in GDP for a while. In the long run, the higher saving rate leads to a higher standard of living. A policymaker might be deterred from trying to raise the rate of saving because doing so requires that people reduce their consumption today and it can take a long time to get to a higher standard of living.
5. A higher rate of saving leads to a higher growth rate temporarily, not permanently.
In the short run, increased saving leads to a larger capital stock and faster
growth. But as growth continues, diminishing returns to capital mean growth slows down and eventually settles down to its initial rate, though this may take several decades.
6. Removing a trade restriction, such as a tariff, would lead to more rapid economic
growth because the removal of the trade restriction acts like an improvement in technology. Free trade allows all countries to consume more goods and services.
7. The higher the rate of population growth, the lower is the level of GDP per person
because there's less capital per person, hence lower productivity.
8. The U.S. government tries to encourage advances in technological knowledge by
providing research grants through the National Science Foundation and the National Institute of Health, with tax breaks for firms engaging in research and development, and through the patent system.
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曼昆经济学原理英文版文案加习题答案25章
