Self-Check Questions

1. Explain what the Industrial Revolution was and where it began.

2. Explain the difference between property rights and contractual rights. Why do they matter to economic growth?

3. Are there other ways in which we can measure productivity besides the amount produced per hour of work?

4. Assume there are two countries: South Korea and the United States. South Korea grows at 4% and the United States grows at 1%. For the sake of simplicity, assume they both start from the same fictional income level, $10,000. What will the incomes of the United States and South Korea be in 20 years? By how many multiples will each country’s income grow in 20 years?

5. What do the growth accounting studies conclude are the determinants of growth? Which is more important, the determinants or how they are combined?

6. What policies can the government of a free-market economy implement to stimulate economic growth?

7. List the areas where government policy can help economic growth.

8. Use an example to explain why, after periods of rapid growth, a low-income country that has not caught up to a high-income country may feel poor.

9. Would the following events usually lead to capital deepening? Why or why not?

• A weak economy in which businesses become reluctant to make long-term investments in physical capital.
• A rise in international trade.
• A trend in which many more adults participate in continuing education courses through their employers and at colleges and universities.

10. What are the “advantages of backwardness” for economic growth?

11. Would you expect capital deepening to result in diminished returns? Why or why not? Would you expect improvements in technology to result in diminished returns? Why or why not?

12. Why does productivity growth in high-income economies not slow down as it runs into diminishing returns from additional investments in physical capital and human capital? Does this show one area where the theory of diminishing returns fails to apply? Why or why not?

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