Most countries, including the United States, import substantial amounts of goods and services from other countries. Yet the chapter says that a nation can enjoy a high standard of living only if it can produce a large quantity of goods and services itself. Can you reconcile these two facts?
Suppose that society decided to reduce consumption and increase investment.
a. How would this change affect economic growth?
b. What groups in society would benefit from this change? What groups might be hurt?
Societies choose what share of their resources to devote to consumption and what share to devote to investment. Some of these decisions involve private spending; others involve government spending.
a. Describe some forms of private spending that represent consumption and some forms that represent investment. The national income accounts include tuition as a part of consumer spending. In your opinion, are the resources you devote to your education a form of consumption or a form of investment?
b. Describe some forms of government spending that represent consumption and some forms that represent investment. In your opinion, should we view government spending on health programs as a form of consumption or investment? Would you distinguish between health programs for the young and health programs for the elderly?
What is the opportunity cost of investing in capital? Do you think a country can overinvest in capital? What is the opportunity cost of investing in human capital? Do you think a country can overinvest in human capital? Explain.
In the 1990s and the first decade of the 2000s, investors from the Asian economies of Japan and China made significant direct and portfolio investments in the United States. At the time, many Americans were unhappy that this investment was occurring.
a. In what way was it better for the United States to receive this foreign investment than not to receive it?
b. In what way would it have been better still for Americans to have made this investment?
In many developing nations, young women have lower enrollment rates in secondary school than do
young men. Describe several ways in which greater educational opportunities for young women could lead to faster economic growth in these countries.
The International Property Right Index scores countries based on the legal and political environment and how well property rights are protected. Go online and find a recent ranking. Choose three countries with high scores and three countries with low scores. Then find estimates of GDP per person in each of these six countries. What pattern do you find? Give two possible interpretations of the pattern.
International data show a positive correlation between income per person and the health of the population.
a. Explain how higher income might cause better health outcomes.
b. Explain how better health outcomes might cause higher income.
c. How might the relative importance of your two hypotheses be relevant for public policy?
The great 18th-century economist Adam Smith wrote, "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things." Explain how= each of the three conditions Smith describes would promote economic growth.