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Posted: January 30th, 2023

Economics 2302 – How does growth differ from development

Economics 2302 #4 Study Questions – Spring 2016

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Reading Assignment for the #4 Assignment: • Textbook, Principles of Macroeconomics, Chapter 8 • Textbook, Principles of Macroeconomics, Chapter 9 • Textbook, Principles of Macroeconomics, Chapter 10

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1. How does growth differ from development? _____________________ 2. What is the primary difference between a developing economy and an underdeveloped economy? ____________________________ 3. In The Wealth of Nations, Adam Smith claimed that he had recently discovered the most important factor affecting human productivity. What was it? ________ 4. According to Smith, the ability of firms to embrace and adopt specialization and the division of labor was primarily limited by ________________________

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5. Why did Adam Smith think that trade policies that restricted markets were bad policies that should be eliminated? ______________________________ 6. The creators of the modern-day European Union (EU) were motivated by Adam Smith’s argument to a large unified market that would allow European firms to ____________________________________ 7. What is capital formation? ____________________________ 8. While all inputs are important, which input has shown itself to most critical to a healthy economy? _____________________ 9. What is the difference between invention and innovation? __________________

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10. Which of the two – invention or innovation – is most critical to economic development? _______________________________ 11. In a Production Possibilities Curve depicting the trade-off between with capital goods vs. consumer goods, an economy choosing more capital goods and less consumption goods will, ceteris paribus ____________________________ 12. Only two types of economies have successfully devised institutions that facilitate this choice. They are __________________________________________ 13. What was Henry Ford’s most important contribution to the automobile industry? _______________________________________________________________ 14. What was Isaac Singer’s most important contribution to the sewing machine industry? _______________________________________________________

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15. What was James Bonsack’s most important contribution to the cigarette industry? _________________________________________________________ 16. What was James Duke’s most important contribution to the cigarette industry? ____________________________________________________________ 17. What was Elisha Otis’s most important contribution to the elevator industry? ______________________________________________________________ 18. Henry Crowell did not invent rolled oats, but his Quaker Oats Company was responsible for creating the market for rolled oats. What was Crowell’s entrepreneurial insight that was most responsible for the success of Quaker Oats? ______________________________________________________________ 19. How does nationalization affect economic development? _____________________________________________________________

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20. To promote growth and development, what should a country do about creative destruction and churn? ____________________________________________ 21. To promote growth and development, what should a country do about protectionism? ___________________________________________________ 22. To promote growth and development, what should a country do about property rights? _______________________________________________________ 23. Most world trade involves ______________ trading with __________________.

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24. Does inflation increase economic development? ____________________________ 25. Population growth often has contradictory effects on economic growth? Why? _________________________________________________________________ 26. As economies move from traditional (or underdeveloped) to developed economies, what usually happens to birth rates, death rates, and population growth? ___________________________________________________ 27. What is the chief characteristic of Stage 1 in the demographic transition? _____________________________________________________________

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28. What is the chief characteristic of Stage 2 in the demographic transition? ___________________________________________________________ 29. What is the chief characteristic of Stage 3 in the demographic transition? ______________________________________________________________ 30. In the case of the soviet factory workers who discovered a technologic innovation that allowed them to increase productivity by 30%, why didn’t they reveal to their supervisors or government officials the new technology? ________________________________________________________________ 31. In the 1970s, President Nixon imposed wage and price controls on the U.S. economy. Nixon’s first price control policy made it illegal for firms to raise their prices beyond a specified percent. While the wage and price control policy was a macroeconomic policy intended to stop inflation, it created a microeconomic problem. Identify the microeconomic problem created by wage and price control policies. __________________________________________________________________

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32. What is the difference between the CPI-U “headline rate” versus the CPI-U “core rate?”_____________________________________________________________ 33. Which of the two versions of the CPI, headline vs. core, is the better measure of the “cost of living?” ___________________________ 34. Which of the two versions of the CPI, headline vs. core, is a better measure of inflationary pressure in the economy? ________________________ 35. Which of the two versions of the CPI, headline vs. core, will usually move or impact financial markets? ___________________________

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36. Which of the two versions of the CPI, headline vs. core, is the Federal Reserve most interested in? _________________________________ 37. Which of the two versions of the CPI, headline vs. core, is the general public (and voters) usually most interested in? _________________________________ 38. Imported products are included in the _______________ index, but excluded from the _______________________ index. 39. Suppose a basket of goods in the base year cost $4,971. This year it cost $8,909. What would this year’s index number be in the index? ____________________

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40. If lenders make loans at a 9% rate of interest and the economy experiences inflation of 7%, what is the real interest rate? ______________________ 41. If lenders make loans at a 3% rate of interest and the economy experiences inflation of 7%, what is the real interest rate? ______________________ 42. How much inflation have we had in the U.S. economy since 1967? (Use the 1982-84 = 100 CPI-U index in the textbook.) Round to the nearest percent. _________ 43. How did U.S. prices change from 1930 through 1933? (Use the 1982-84 = 100 CPI-U index in the textbook.) Round to the nearest percent. ________________ 44. What is the value of Pele’s 1975 contract to play for the New York Cosmos in today’s money? (Use the 1982-84 = 100 CPI-U index in the textbook.) Round to the nearest dollar.______________

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45. What is the value of Pele’s 1970 Puma shoe endorsement in today’s dollars? (Use the 1982-84 = 100 CPI-U index in the textbook.) Round to the nearest dollar. _______________ 46. Go to the discussion of Henry Ford in Chapter 8. Prior to selling the Model T, Ford's biggest selling model was the Model K which sold for $2,800. What is the value of the 1906 Model K in Today’s dollars? (Use the 1967 = 100 CPI-U index in the textbook.) Round to the nearest dollar. _____________________________ 47. Go to the discussion of Henry Ford in Chapter 8. Ford introduced the Model T in 1908 at a selling price of $850. What is the value of the 1908 Model T in Today’s dollars? (Use the 1967 = 100 CPI-U index in the textbook.) Round to the nearest dollar. ______________ 48. Go to the discussion of Henry Ford in Chapter 8. By 1927, a new Model T cost $280. What is the value of the 1927 Model T in Today’s dollars? (Use the 1967 = 100 CPI-U index in the textbook.) Round to the nearest dollar. _______________ 49. In 1968, the federal minimum wage was raised to $1.60. Today’s federal minimum wage is $7.25 (for workers with employer health benefits). In nominal terms, this is about 4.5 times the minimum wage in 1968. How high is today’s ($7.25) real minimum wage compared to 1968? (Use the 1982-84 = 100 CPI-U index in the textbook.) Round to the nearest cent. ______________________

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50. The CIA admitted to spending $60,000 to topple the government of Iran in 1953. What is the value of $60,000 spent in 1953 in today’s money? (Use the 1982-84 = 100 CPI-U index in the textbook.) Round to the nearest dollar. ____________. Can your answer above be used to address that question as to how weak or strong the Mossedegh government was? Why or why not? _______________________________________________________________ 51. The CIA admitted to spending $60,000 to topple the government of Iran in 1953. What is the value of $60,000 spent in 1953 in today’s money? (Use the 1982-84 = 100 CPI-U index in the textbook.) Round to the nearest dollar. ____________. Can your answer above be used to address that question as to whether it was right or wrong to topple a foreign government? Why or why not? _____________________________________________________________ 52. What is the value of Ted Williams’ 1957 salary of $100,000 in today’s money? (Use the 1982-84 = 100 index in the text.) Round to the nearest dollar. ________. 53. Inflation is less disruptive to the economy when it is ______________________.

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54. How does inflation effect the duration of contracts in the business world? _______________________________________ 55. What is “indexing?” _________________________________. Which index is most often used for indexing in the U.S. ________________________

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