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Chapter 18: Q. 1 (page 412)
A country's real GDP is growing at an annual rate of percent, and the current rate of growth of per capital real GDP is percent per year. What is the population growth rate in this nation?
The population growth in this nation when GDP is per year is
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Identify which of the following situations currently faced by international investors are examples of adverse selection and which are examples of moral hazard.
Among the governments of several developing countries that are attempting to issue new bonds this year, it is certain that a few will fail to collect taxes to repay the bonds when they mature. It is difficult, however, for investors considering buying government bonds to predict which governments will experience this problem.
Foreign investors are contemplating purchasing stock in a company that, unknown to them, may have failed to properly establish legal ownership over a crucial capital resource.
. Companies in a less developed nation have already issued bonds to finance the purchase of new capital goods. After receiving the funds from the bond issue, however, the company's managers pay themselves large bonuses instead.
When the government of a developing nation received a bank loan three years ago, it ultimately repaid the loan but had to reschedule its payments after officials misused the funds for unworthy projects. Now the government, which still has many of the same officials, is trying to raise funds by issuing bonds to foreign investors, who must decide whether or not to purchase them.
The annual rate of growth of real GDP in a developing nation is percent. Initially, the country's population was stable from year to year. Recently, however, a significant increase in the nation's birthrate has raised the annual rate of population growth to percent.
a. What was the rate of growth of per capita real GDP before the increase in population growth?
b. If the rate of growth of real GDP remains unchanged, what is the new rate of growth of per capita real GDP following the increase in the birthrate?
During the past year, several large banks extended million in loans to the government and several firms in a developing nation. International investors also purchased million in bonds and million in stocks issued by domestic firms. Of the stocks that foreign investors purchased, million were shares that amounted to less than a percent interest in domestic firms. This was the first year this nation had ever permitted inflows of funds from abroad.
a. Based on the investment category definitions discussed in this chapter, what was the amount of portfolio investment in this nation during the past year?
b. What was the amount of foreign direct investment in this nation during the past year?
Assume that each billion in net capital investment generates percentage point of the average percentage rate of growth of per capita real GDP, given the nation's labor resources. Firms have been investing exactly billion in capital goods each year, so the annual average rate of growth of per capita real GDP has been percent. Now a government that fails to consistently adhere to the rule of law has come to power, and firms must pay million in bribes to gain official approval for every billion in investment in capital goods. In response, companies cut back their total investment spending to billion per year. If other things are equal and companies maintain this rate of investment, what will be the nation's new average annual rate of growth of per capita real GDP?
Some international policymakers argue that the world's poor require stronger "nudges, "such as policies that prevent them grow making "bad" choices. How might stronger nudges limit economic freedom and potentially slow economic growth? (What Does reducing the range of people's choices expand or limit their economic freedom??
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