Chapter 23

1. Japan’srealGDPwas561trillionyenin2007and569trillion
yen in 2008. Japan’s population was 127.7 million in 2007 and
127.8 million in 2008. Calculate
a. The economic growth rate.
The economic growth rate is the growth rate of real GDP. Between
2007 and 2008 this growth rate equals [(569 trillion yen  561
trillion yen)/561 trillion yen]  100, which is 1.4 percent.
b. The growth rate of real GDP per person.
Japan’spopulationgrewat[(127.8million127.7 million)/127.7
million] 100,whichis0.1percent.Japan’seconomicgrowthrate
is 1.4 percent, so the growth rate of real GDP per person is 1.4
percent  0.1 percent, or 1.3 percent.
c. The approximate number of years it takes for real GDP per
person in Japan to double if the 2008 economic growth rate
and population growth rate are maintained.
Japan’s real GDP per person is growing at1.3 percent a year. The
rule of 70 tells us that Japan’s real GDP per person will double
in 70/1.3 = 54 years.
2. For three years, there was no technological change in Longland
but capital per hour of labor increased from $10 to $20 to $30
and real GDP per hour of labor increased from $3.80 to $5.70
to $7.13. Then, in the fourth year, capital per hour of labor
remained constant but real GDP per hour of labor increased to
$10.
a. Does Longland experience diminishing returns? Explain why or
why not.
Longland experiences diminishing returns. Diminishing returns are
present if the marginal product of capital diminishes as capital
increases, holding technology constant. When capital per hour of
labor increases by $10 from $10 to $20, real GDP per hour of labor
increases by $1.90 (from $3.80 to $5.70). But when capital per
hour increases by another $10 from $20 to $30, real GDP per hour
of labor increases by only $1.43 (from $5.70 to $7.13).
b. Does Longland conform to the one third rule? If so, explain
why. If not, explain why not and explain what rule, if any,
it does conform to.
The economy doe not conform to the one third rule; instead it
conforms to a one half rule. In this economy, an x percent increase
in capital per hour of labor leads to a 0.25x percent increase
in real GDP per hour of labor. To determine the rule in Longland,
calculate the percentage change in capital per hour labor and real
GDP per hour of labor at each of the levels provided in the question,
and then divide the percentage change in real GDP per hour of labor
by the percentage change in capital per hour of labor. For example,
when capital per hour of labor increases by 100 percent from $10
to $20, real GDP per hour of labor increases by 50 percent from
$3.80 to $5.70. Or when capital per hour of labor increases 50
percent from $20 to $30, real GDP per hour of labor increases by
25 percent from $5.70 to $7.13.
 c. Explain how you would do the growth accounting for Longland
and calculate the effect of technological change on growth
in the fourth year described above.
Growth accounting would be done in qualitatively the same way as
in the U.S. economy with the difference that any percentage change
in the capital per hour of labor increases real GDP per hour of
labor by 50 percent rather than 33 percent. In the fourth year,
because capital per hour of labor remained constant, all the
increase in real GDP per hour of labor is the result of
technological growth. So the 40 percent increase in real GDP per
hour of labor is the result of technological change.
3. If the United States cracks down on illegal immigrants and
returns millions of workers to their home countries, explain
what happens to
a. U.S. potential GDP.
U.S. potential GDP decreases. The U.S. production function is
unchanged, but equilibrium employment decreases in the United
States so that U.S. potential GDP decreases.
b. U.S. employment.
The supply of labor in the United States decreases, which decreases
equilibrium U.S. employment.
c. The U.S. real wage rate.
The supply of labor in the United States decreases, which raises
the equilibrium U.S. real wage rate.
In the countries to which the immigrants return, explain what
happens to
d. Potential GDP.
Potential GDP increases. The production function is unaffected,
but equilibrium employment increases in those countries so that
potential GDP increases.
e. Employment.
Employment increases. The supply of labor increases, which
increases equilibrium employment.
f. The real wage rate.
The wage rate falls. The supply of labor increases, which lowers
the equilibrium real wage rate.
4. In the economy of Cape Despair, the
subsistence real wage rate is $15 an Labor Real GDP
hour. Whenever real GDP per hour rises (billions (billions
above $15, the population grows, and of of
whenever real GDP per hour of labor hours per 2000
falls below this level, the population year) dollars)
falls. The table shows Cape Despair’s 0.5 8
production function. Initially, the 1.0 15
population of Cape Despair is constant 1.5 21
and real GDP per hour of labor is at 2.0 26
the subsistence level of $15. Then a 2.5 30
technological advance shifts the 3.0 33
production function upward by 50 3.5 35
 percent at each level of labor.
a. What are the initial levels of real GDP and labor productivity?
Before the technological advance, labor productivity, which is
defined as real GDP divided by employment, was $15.00 an hour.
Real GDP was $15 billion and 1.0 billion hours of labor were
employed.
b. What happens to labor productivity immediately following the
technological advance?
Immediately following the technological advance, real GDP rises
to $22.5 billion and employment remains at 1.0 billion hours. Labor
productivity increases to $22.50 an hour.
c. What happens to the population growth rate following the
technological advance?
Real GDP per hour exceeds the subsistence level of $15.00, so
population growth increases.
d. What are the eventual levels of real GDP and real GDP per hour
of labor?
Eventually population growth will increase labor supply so that
productivity will return to its subsistence level of $15.00 an
hour. Real GDP will increase to $52.5 billion. Labor employment
will equal 3.5 billion hours so that labor productivity equals
$15.00.
5. Explain the processes that will bring the growth of real GDP
per person to a stop according to
a. Classical growth theory
According to the classical theory, population growth continues
at a rapid pace as long as real GDP per person exceeds the
subsistence level. With population growth, the supply of labor
increases and diminishing returns lowers real GDP per person.
Eventually real GDP per person equals the subsistence amount, at
which time economic growth ends.
b. Neoclassical growth theory
In the neoclassical model, technological growth leads to increased
saving so that capital accumulates and real GDP per person grows.
When technological growth stops, capital continues to accumulate
but diminishing returns drives the return on capital lower and
so decreases investment and saving. Eventually the capital stock
stops growing and economic growth stops.
c. New growth theory
According to the new growth theory, economic growth will not stop.
6. U.S. Workers World’s Most Productive
American workers stay longer in the office, at the factory,
or on the farm than their counterparts in Europe and most other
richnations,andtheyproducemoreperpersonovertheyear.…
Productivity ... is found by dividing the country’s gross
domestic productbythenumberofpeopleemployed.…Onlypart
of the U.S. productivity growth, ... can be explained by the
longerhoursAmericansareputtingin.…[TheU.S.]alsobeats
all 27 nations in the European Union, Japan, and Switzerland
in the amount of wealth created per hour of work. … The U.S.
employeeputinanaverage1,804hoursofworkin2006…compared
 with 1,407.1 hours for the Norwegian worker and 1,564.4 for
the French. It pales, however, in comparison with the annual
hours worked per person in Asia, where seven economies—South
Korea, Bangladesh, Sri Lanka, Hong Kong, China, Malaysia and
Thailand—surpassed 2,200 average hours per worker. But those
countries had lower productivity rates. ...
CBS News, September 3, 2007
a. What is the difference between productivity in this article
and per capita real GDP?
Productivity equals GDP divided by the number of people employed;
real GDP per person equals real GDP divided by the population.
The article probably means to use real GDP rather than nominal
GDP when calculating productivity. The major difference is the
difference in the denominator: Productivity divides by the number
of workers and real GDP per person divides by the population.
b. Identify and correct a confusion between levels and growth
rates of productivity in the news article.
If the aggregate production function in the United States and the
European Union is the same, then the increased hours at work in
the United States means that the level of U.S. real GDP per worker
exceeds that in the European Union. But it does not mean that the
growth rate of U.S. productivity will exceed that in the European
Union.
c. If workers in developing Asian economies work more hours than
Americans, why are they not the world’s most productive?
It is likely the case that the aggregate production functions in
the Asian economies lie below the U.S. aggregate production
function so that for any level of employment U.S. real GDP exceeds
the Asian economies’ real GDPs. In this case, even though Asian
workers put in more hours on the job than American workers, U.S.
real GDP exceeds Asian real GDP so that U.S. real GDP per worker
exceeds Asian real GDP per worker.
7. You Have Seven Years to Learn Mandarin
A recent study by the economist Angus Maddison projects that
China will become the world’s dominant economic superpower …
in 2015. ... If that happens, America will close out a 125-year
runastheNo.1economy.Weassumedthetitlein1890.…China
was the largest economy for centuries because everyone had the
same type of economy —subsistence—and so the country with the
most people would be economically biggest. Then the Industrial
Revolution sent the West on a more prosperous path. Now the
world is returning to a common economy, this time
technology-and information based, so once again population
triumphs.
Fortune, May 12, 2008
a. Why was China the world’s largest economy until 1890?
GDP equals GDP per person multiplied by the number of people. Until
1890 most people in the world had approximately the same
subsistencelevelofincomesothateverynation’sGDPsperperson
was about the same. Because China had, by far, theworld’slargest
population, China also had the world’s largest GDP.
 b. Why did the United States surpass China in 1890 to become the
world’s largest economy?
The United States benefited from the industrial revolution that
was sweeping Western nations at the time while China did not. U.S.
economic growth accelerated well beyond Chinese economic growth
so that the U.S. GDP became larger than China’s GDP.
c. Explainwhy Chinaispredictedtobecomethe world’slargest
economy again.
China is growing very rapidly, much more rapidly than the United
States. Given the very rapid Chinese growth, China’s GDP is
predicted to exceed U.S. GDP in 2015.
d. When Chinabecomestheworld’slargesteconomy,doesthatmean
that the standard of living in China will be higher than in
the United States? Explain.
No. While China’s GDP will exceed U.S. GDP, China’s population
exceeds the U.S. population by more than 1 billion. So China’s
GDP per person will lag well beyond U.S. GDP per person.
8. McCain Vows to Retool Training Programs
John McCain ... proposed updating the unemployment system and
retooling training programs to help people who have lost their
jobs —particularly older workers—adapt to a changing economy.
“Change is hard, and while most of us gain, some industries,
companies and workers are forced to struggle with very
difficultchoices,”theRepublicanpresidentialcandidatesaid
as he espoused free-market principles. … “But it is
government’sjobtohelpworkersgettheeducationandtraining
they need for the new jobs that will be created by new businesses
in this new century,” McCain added. … He said free people are
the strongest economic force in the country… [McCain] called
for overhauling the unemployment insurance program so that it
can retrain, relocate, and assist workers to find new jobs;
replacing a half-dozen outmoded and redundant jobs programs
with a single system; drawing on the success of community
colleges that he says does a better job than the federal
government of giving workers [the] skills they need.
The Washington Post, October 9, 2007
a. Explain the rationale behind McCain’s “free-market
principles” and stance that “free people are the strongest
economic force in the country.”
Mr.McCainisstressingtheimportanceofthe“preconditions”for
economic growth, that is, the incentives that will help deliver
rapideconomicgrowth.Theideaof“free-marketprinciples”means
that property rights are protected and that markets are used to
allocateresources.Mr.McCain’scommentabout“freepeople”again
refers to the incentive system. Mr. McCain is emphasizing that
people need the property rights to invest in human and physical
capital and to develop new technologies.
b. Explain how the policies that McCain advocates can encourage
greater growth in the changing U.S. economy.
Mr. McCain’s policies are designed to increase workers’ human
capital and make it easier for them to find jobs. For instance,
 Mr. McCain suggested retooling training programs and using
community colleges to help train (and retrain) workers. These
sources of training increase workers’ human capital and lead to
more rapid economic growth. Mr. McCain also suggested relocating
and assisting workers to find new jobs. This policy would decrease
frictional unemployment, which would increase U.S. real GDP.
9. Aptera: Road Runner
Steve Fambro was sick of people whizzing past him in the carpool
lane, so he decided to do something about it. He set out to
design a three-wheeled vehicle –technically a motorcycle—that
would make it legal for him to drive alone in that lane and
be cozy enough for daily commuting. While researching designs,
he realized something important about fuel efficiency: It’s
all about aerodynamics. By tearing up the rule book, he found
a shape that would nearly eliminate wind resistance, thereby
reducing by two-thirds the energy needed to move a car. With
an infusion of $20 million from Idealab… Fambro’s company,
Aptera, is scheduled to begin production later this year. The
vehicle gets an average of 300 miles per gallon. … Priced at
around $30,000, Aptera’s cars are already sold out.
Fortune, April 28, 2008
a. Explain which growth theory best describes the news article.
The new growth theory best describes the news article.
b. Use the model explained in this chapter to illustrate your
answer to a.
The new growth theory stresses the role of choice, innovation,
profit, the birth of new firms and the death of old ones. The new
growth theory best describes the article because Mr. Fambro choose
to innovate a new way vehicle and then formed a company because
he saw the possibility of profit. If his three-wheeled vehicle
is successful, Mr. Fambro’s company stands to make a substantial
profit.
10. If in 2008 China’s real GDP is growing at 9 percent a year,
its population is growing at 1 percent a year, and these growth
rates continue, in what year will China’s real GDP per person
be twice what it is in 2008?
China’srealGDPisgrowing at 9 percent a year and its population
is growing at 1 percent a year, so its real GDP per person is growing
at 8 percent a year. The rule of 70 tells us that China’s real
GDP per person will double in 70/8 = 8¾ years. So China’s real
GDP per person will be twice what it is in 2008 in 2017.
11. If a large increase in investment increases labor productivity,
explain what happens to
a. Potential GDP.
The production function curve shifts upward and equilibrium
employment increases, both of which increase potential GDP.
b. Employment.
Employment increases. The demand for labor increases, which
increases equilibrium employment.
 c. The real wage rate.
The real wage rate rises. The demand for labor increases, which
raises the equilibrium real wage rate.
If a severe drought decreases labor productivity, explain what
will happen to
d. Potential GDP.
The production function curve shifts downward and equilibrium
employment decreases, both of which decrease potential GDP.
e. Employment.
Employment decreases. The demand for labor decreases, which
decreases equilibrium employment.
f. The real wage rate.
The real wage rate falls. The demand for labor decreases, which
lowers the equilibrium real wage rate.
12. The New New World Order
“If you’re a consumer sitting in Paris and you’re … watching
TV, it looks like the world is coming to an end,” says
[international grocery store chain] Carrefour executive David
Shriver.“ButconsumersinplaceslikeChinaandBrazilsimply
don’tseeitthatway.”Welcometothenew,precariously bipolar
world. While gross domestic product growth is cooling a bit
in emerging markets, the results are still tremendous compared
with the U.S. and much of Western Europe. The 54 developing
markets surveyed by Global Insight will post a 6.7% jump in
real GDP this year, down from 7.5% last year. The 31 developed
countries will grow an estimated 1.6%. The difference in growth
rates represents the largest spread between developed and
developing markets in the 37-year history of the survey.
Fortune, July 14, 2008
a. Explain the “bipolar world” that is revealed by recent
economic growth rates.
The“bipolarworld”reflectsrelativelyrapidgrowthindeveloping
economies, 6.7 percent in 2008, versus relatively slow growth in
developed economies, 1.6 percent in 2008.
b. Do growth rates over the past few decades indicate that gaps
in per capita real GDP around the world are shrinking, growing,
or staying the same? Explain.
Gaps with a few countries are shrinking but for the most part gaps
are remaining more or less the same. The gaps between U.S. real
GDP per person and real GDP per person in a few Asian countries,
such as Hong King, Singapore, Taiwan, Korea, and China have
narrowed sharply over the last 40 years. But the gaps between U.S.
real GDP per person and real GDP per person in Canada, Europe,
Japan (since 1970), and Central and South America have remained
roughly constant over the past decades. And the gap between U.S.
real GDP per person and real GDP per person in Africa has widened
slightly since 1960.
13. Underinvesting in the Future
South Korea, Hong Kong, Taiwan and Singapore have over 40 years
averaged roughly the highest consistent economic growth rates
 in the world. … But change the national accounting principles
behind these rosy numbers and a different picture emerges, one
that the societies concerned have barely begun to grapple with.
In one vital respect these countries (soon to be joined by China)
collectively may have the worst record of investment in the
future since homo sapiens evolved: Investment in the next
generation. They have the lowest fertility rates in the
world. ... Economists forget that people as well as buildings
depreciate at a roughly predictable rate. Child-rearing is at
least as essential as building roads. Imagine if these four
economies had invested less in infrastructure and ... more in
people. ... They would not be facing a situation in which their
work forces—unless replaced by immigrants—will decline
dramatically within 20 years as the population over 65
continues to grow. The payback for years of what may well have
been the misallocation of resources is not far in the future.
International Herald Tribune, July 7, 2008
a. Explain why the rapid growth rates of these Asian economies
might be masking a “misallocation of resources” that will
result in lower income per person in the future.
The new growth theory concludes that population growth increases
economic growth because population growth means more people to
develop new knowledge and new technologies. The Asian economies
are currently growing rapidly but their population growth is
extremely slow. The new growth theory predicts that the slow
population growth means that in the future their economic growth
rates will slow.
b. Explain the difficulties in balancing goals for immediate
economic growth and future economic growth.
People have a limited amount of time, which they can spend at work,
perhaps developing new knowledge or new technology, or at home,
raising children. If they spend their time at work, immediate
economic growth will be higher than if they spend the time at home.
But if they spend their time at home raising children, the future
economic growth will be higher as the population growth is higher.
14. India’s Economy Hits the Wall
Just six months ago, India was looking good. Annual growth was
9%, corporate profits were surging 20%, the stock market had
risen 50% in 2007, consumer demand was huge, local companies
were making ambitious international acquisitions, and foreign
investment was growing. Nothing, it seemed, could stop the
forward march of this Asian nation. But stop it has. ... The
country is reeling from 11.4% inflation, large government
deficits, and rising interest rates. Foreign investment in
India’sstockmarketisfleeing,therupeeisfalling,and the
stock market is down over 40% from the year’s highs. Most
economic forecasts expect growth to slow to 7%—a big drop for
a country that needs to accelerate growth, not reduce it. …
India needs urgently to spend $500 billion on new
infrastructure and more on upgrading education and health-care
facilities. ... A plan to build 30 Special Economic Zones is
 virtually suspended because New Delhi has not sorted out how
to acquire the necessary land, a major issue in both urban and
rural India, without a major social and political upheaval.
Agriculture [is] … technologically laggard … [and] woefully
unproductive. Simple and nonpolitical reforms, like
strengthening the legal system and adding more judges to the
courtrooms, have been ignored. … A June 16 report by Goldman
Sachs’ Jim O’Neill and Tushar Poddar… urges India to improve
governance, raise educational achievement, and control
inflation. It also advises reining in profligate expenditures,
liberalizing its financial markets, increasing agricultural
productivity, and improving infrastructure, the environment,
and energy use.
Business Week, July 1, 2008
Explain five potential sources for faster economic growth in
India suggested in this news clip.
One suggested source of increased economic growth is increased
infrastructure investment. Infrastructure includes factors such
as roads, ports, railways, and electricity transmission. Another
suggestion is to increase the number of judges, strengthen the
legal system, and improve governance. However, while a seemingly
simple suggestion, this process is likely to wind up politically
quitedifficult.AthirdsuggestionmentionedintheGoldmanSachs’
report is to raise education achievement. This suggestion, while
not a short-term fix, would be quite powerful at raising India’s
long-term growth. Another source to increase economic growth is
to increase productivity in agriculture. This suggestion, however,
is not well detailed; in particular, it is much easier to suggest
raising productivity than to actually do so. Finally, two
possibility related suggestions are to lower inflation and limit
government expenditure. Lowering inflation will help make the
price system more efficient while reigning in government
expenditure will allow more resources to be allocated by the market,
which is likely a more efficient mode of allocation.
15. Makani Power: A Might Wind
Makani Power aims to generate energy from what are known as
high-altitude wind-extraction technologies. Andthat’s about
all its 34-year-old Aussie founder, Saul Griffith, wants to
say about it. … But Makani can’t hide entirely, not when its
marquee investor is Google.org, the tech company’s
philanthropic arm. Makani’s plan is to capture that
high-altitude wind… with a very old tool: kites. Harnessing
higher-altitude wind, at least in theory, has greater potential
thantheexistingwindindustry…athousandfeetaboveground,
wind is stronger and more consistent.
Fortune, April 28, 2008
Explain which growth theory best describes the above article.
The new growth theory stresses the role of innovation and the birth
of new firms and the death of old ones. The new growth theory best
describes the article because Mr. Griffith is innovating a new
way to generate energy. And if his novel method is successful,
 then new firms that exploit this method will be born and old firms
that use outdated technology will die.
16. The Productivity Watch
According to former Federal Reserve chairman Alan Greenspan,
IT investments in the 1990s boosted productivity, which boosted
corporate profits, which led to more IT investments, and so
on, leading to a nirvana of high growth.
Fortune, September 4, 2006
Which of the growth theories that you have studied in this
chapter best corresponds to the explanation given by Mr.
Greenspan?
Mr. Greenspan is describing the new growth theory. According to
this theory, economic growth will persist indefinitely because
of the perpetual pursuit of profit.
17. Make Way for India—The Next China
... China ... [is] growing at around 9 percent a year. ...
[China’s] one-child policy will start to reduce the size of
China’s working population within the next 10 years. India,
by contrast, will have an increasing working population for
another generation at least.
The Independent, 1 March 2006
a. Given the expected population changes, do you think China or
India will have the greater economic growth rate? Why?
Economic growth occurs because labor productivity grows and
because the population grows. If labor productivity grows at the
same rate in China as in India, then the more rapid population
growth in India will lead to more rapid economic growth in India.
b. Would China’s growth rate remain at 9 percent a year without
the restriction on its population growth rate?
According to the classical theory of economic growth, restricting
population growth is necessary for persisting economic growth.
According to the new growth theory, restricting population growth
leads to slower economic growth. So whether China’s growth would
remain at 9 percent a year without restricting population growth
is not clear.
c. India’s population growth rate is 1.6 percent a year, and in
2005 its economic growth rate was 8 percent a year. China’s
population growth rate is 0.6 percent a year, and in 2005 its
economic growth rate was 9 percent a year. In what year will
real GDP per person double in each country?
India’sgrowthinrealGDPperpersonequals8percentayearminus
1.6 percent a year, which is 6.4 percent a year. According to the
Rule of 70, at this rate India’s real GDP per person will double
in 70/6.4, which is 10.9 years. So India’s real GDP per person
will double by 2016.
China’sgrowthinrealGDPperpersonequals9percentayearminus
0.6 percent a year, which is 8.4 percent a year According to the
Rule of 70, at this rate China’s real GDP per person will double
in70/8.4,whichis8.3years.SoChina’srealGDPperpersonwill
double in 2014.
18. Is faster economic growth always a good thing? Argue the case
for faster growth and the case for slower growth. Then reach
a conclusion on whether growth should be increased or slowed.
More rapid economic growth brings increased consumption
possibilities in the future, which is the benefit from economic
growth. Economic growth has costs: Decreased current consumption
and the possibility of increased resource depletion and
environmental damage. (Of course, the technological change that
results from economic growth might allow for less resource
depletion and less environmental damage.) Whether economic growth
should be increased or decreased depends on the benefits of more
rapid growth relative to the costs of more rapid growth.
19. After studying Reading Between the Lines on pp. 556–557
(154-155 in Macroeconomics), answer the following questions:
a. What was the growth rate of real GDP in China in the year ended
August 2008?
Real GDP in China grew at about 10 percent in 2008.
b. Is real GDP per hour of labor in China growing because labor
productivity is increasing or only because the population is
increasing? How would you determine the contribution of each
factor?
Real GDP per hour of labor in China is growing because the
population is increasing and because labor productivity is
increasing. We know that labor productivity must be increasing
because population growth alone is insufficient to lead to 10
percent growth. To determine the contribution of population growth
and labor productivity on the growth of real GDP per hour of labor,
growth accounting must be used. Probably the first step would be
to verify whether the one-third rule applies to China’s economy.
c. With the population growth in both countries at about 1 percent
a year, is China narrowing the gap between real GDP per person
between China and the United States?
China’s real GDP per person is growing at 9 percent a year and
U.S. real GDP per person is growing at 1.5 percent per year. The
gap between real GDP per person in China and the United States
is narrowing.
d. At the current rate of convergence in c, how long will it take
for real GDP per person in China to equal that in the United
States?
Currently China’s real GDP per person is$5 and U.S. real GDP per
person is $48. China’s real GDP is growing at 10.0 percent per
year and U.S. real GDP is growing at 2.5 percent per year.
Population growth is about 1 percent a year in both countries,
so real GDP per person is growing at 9 percent per year in China
and 1.5 percent per year in the United States. Assuming these growth
rates remain constant, and setting t equal to the number of years
untiltheyareequal, China’srealGDP per person will equal that
t t
in the United States when ($5 1.09) = ($48 1.015) so that
t = 31.7 years.

20. Use the link on MyEconLab (Chapter Resources, Chapter 23, Web
 links) to obtain data on real GDP per person for the United
States, China, South Africa, and Mexico since 1960.
a. Draw a graph of the data.

The data are on the page after the answers to this question and
Figure 6.1 illustrates them. The data are from the Penn World Table,
located at http://pwt.econ.upenn.edu/php_site/pwt_index.php.
b. Which country has the lowest real GDP per person and which
has the highest?
China has the lowest real GDP per person and the United States
has the highest.
c. Which country has experienced the fastest growth rate since
1960 and which the slowest?
The fastest growth has been experienced by China, which grew at
an annual average rate of 10.4 percent. The slowest growth has
been experienced by South Africa, which grew at annual average
rate of 2.5 percent. Mexico grew at an annual average rate of 3.2
percent and the United States grew at an annual average rate of
4.2 percent.
d. Explain why the growth rates in these four countries are ranked
in the order you have discovered.
China has the lowest income and is catching up to the United States.
Mexico and South Africa have incomes well below the United States
and are generally not catching up to the United States. So China
displays convergence with U.S. real GDP per person and Mexico and
South Africa do not display convergence.
e. Return to the Web site and obtain data for any four other
countries that interest you. Describe and explain the patterns
that you find for these countries.
With a few exceptions, nations that had lower levels of GDP in
1960 grew more rapidly than nations that started with higher levels
of real GDP. The exceptions tend to be African nations, especially
those in sub-Sahara. Those countries, even though they started
at lower levels of GDP, still grew slowly.

South United
Year China Mexico Africa States
1960 448.13 3718.84 4927.12 12892.02
1961 372.07 3705.31 5215.07 12940.68
1962 365.09 3727.21 5488.40 13568.40
1963 383.86 3951.33 5534.71 14007.61
1964 419.66 4348.10 5533.75 14665.62
1965 457.70 4443.62 5744.48 15492.84
1966 481.60 4566.04 5940.88 16248.21
1967 453.66 4675.90 6021.08 16370.62
1968 428.96 4929.78 6259.12 17072.56
1969 461.97 4967.89 6331.30 17501.08
1970 499.77 5126.52 6451.87 17321.48
1971 533.00 5183.52 6531.87 17792.90
1972 534.09 5444.43 6715.43 18647.05
1973 560.73 5711.44 6752.00 19551.84
1974 560.12 5876.80 6627.43 19207.30
1975 588.68 6053.36 6874.28 18931.99
1976 589.45 6122.72 7016.30 19861.88
1977 614.46 6126.62 7162.72 20652.32
1978 669.03 6454.79 7103.56 21615.18
1979 722.57 6865.31 7249.51 22041.69
1980 749.19 7271.13 7578.10 21606.15
1981 797.12 7718.72 7539.88 21955.53
1982 882.62 7434.08 7619.62 21313.55
1983 938.65 6914.38 7826.10 22154.36
1984 1054.91 7007.46 7789.68 23671.96
1985 1131.84 7072.08 7656.84 24387.45
1986 1289.14 6652.99 7423.92 24951.98
1987 1409.58 6595.13 7453.15 25520.70
1988 1486.18 6515.03 7547.70 26275.36
1989 1494.55 6657.91 7690.98 26927.17
1990 1671.90 6864.01 7714.55 27096.98
1991 1791.04 7025.64 7554.46 26688.35
1992 1974.67 7145.61 7268.02 27342.67
1993 2127.92 7147.47 7275.70 27871.53
1994 2451.81 7327.61 7307.98 28802.88
1995 2703.04 6748.19 7336.12 29248.77
1996 2924.77 6948.42 7544.63 30097.68
1997 3230.04 7286.64 7671.14 31237.96
1998 3475.37 7527.49 7696.70 32297.52
1999 3691.26 7700.78 7915.37 33443.54
2000 4001.82 8082.09 8226.06 34364.50
2001 4281.00 7973.76 8447.01 34162.90
2002 4630.42 7926.54 8654.89 34286.24
2003 4969.64 7938.15 8836.35 34875.37
2004 5332.53 8165.22 9145.86 36098.15