Skip to ContentGo to accessibility pageKeyboard shortcuts menu
OpenStax Logo

1.

The answers are shown in the following two tables.

Region GDP (in millions)
East Asia $10,450,032
Latin America $5,339,390
South Asia $2,288,812
Europe and Central Asia $1,862,384
Middle East and North Africa $1,541,900
Sub-Saharan Africa $1,287,650
Region GDP Per Capita (in millions)
East Asia $5,246
Latin America $1,388
South Asia $1,415
Europe and Central Asia $9,190
Middle East and North Africa $4,535
Sub-Saharan Africa $6,847

East Asia appears to be the largest economy on GDP basis, but on a per capita basis it drops to third, after Europe and Central Asia and Sub-Saharan Africa.

2.

A region can have some of high-income countries and some of the low-income countries. Aggregating per capita real GDP will vary widely across countries within a region, so aggregating data for a region has little meaning. For example, if you were to compare per capital real GDP for the United States, Canada, Haiti, and Honduras, it looks much different than if you looked at the same data for North America as a whole. Thus, regional comparisons are broad-based and may not adequately capture an individual country’s economic attributes.

3.

The following table provides a summary of possible answers.

High-Income
Countries
Middle-Income
Countries
Low-Income
Countries
  • Foster a more educated workforce
  • Create, invest in, and apply new
    technologies
  • Adopt fiscal policies focused on
    investment, including investment in
    human capital, in technology,
    and in physical plant and equipment
  • Create stable and market-oriented
    economic climate
  • Use monetary policy to keep inflation
    low and stable
  • Minimize the risk of exchange rate
    fluctuations, while also encouraging
    domestic and international competition
  • Invest in technology, human
    capital, and physical capital
  • Provide incentives of a market-
    oriented economic context
  • Work to reduce government
    economic controls on market
    activities
  • Deregulate the banking and
    financial sector
  • Reduce protectionist policies
  • Eradicate poverty and extreme
    hunger
  • Achieve universal primary
    education
  • Promote gender equality
  • Reduce child mortality rates
  • Improve maternal health
  • Combat HIV/AIDS, malaria,
    and other diseases
  • Ensure environmental
    sustainability
  • Develop global partnerships
    for development
4.

Low-income countries must adopt government policies that are market-oriented and that educate the workforce and population. After this is done, low-income countries should focus on eradicating other social ills that inhibit their growth. The economically challenged are stuck in poverty traps. They need to focus more on health and education and create a stable macroeconomic and political environment. This will attract foreign aid and foreign investment. Middle-income countries strive for increases in physical capital and innovation, while higher-income countries must work to maintain their economies through innovation and technology.

5.

If there is a recession and unemployment increases, we can call on an expansionary fiscal policy (lower taxes or increased government spending) or an expansionary monetary policy (increase the money supply and lower interest rates). Both policies stimulate output and decrease unemployment.

6.

Aside from a high natural rate of unemployment due to government regulations, subsistence households may be counted as not working.

7.

Indexing wage contracts means wages rise when prices rise. This means what you can buy with your wages, your standard of living, remains the same. When wages are not indexed, or rise with inflation, your standard of living falls.

8.

An increase in government spending shifts the AD curve to the right, raising both income and price levels.

9.

A decrease in the money supply will shift the AD curve leftward and reduce income and price levels. Banks will have less money to lend. Interest rates will increase, affecting consumption and investment, which are both key determinants of aggregate demand.

10.

Given the high level of activity in international financial markets, it is typically believed that financial flows across borders are the real reason for trade imbalances. For example, the United States had an enormous trade deficit in the late 1990s and early 2000s because it was attracting vast inflows of foreign capital. Smaller countries that have attracted such inflows of international capital worry that if the inflows suddenly turn to outflows, the resulting decline in their currency could collapse their banking system and bring on a deep recession.

11.

The demand for the country’s currency would decrease, lowering the exchange rate.

Order a print copy

As an Amazon Associate we earn from qualifying purchases.

Citation/Attribution

This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's permission.

Want to cite, share, or modify this book? This book uses the Creative Commons Attribution License and you must attribute OpenStax.

Attribution information
  • If you are redistributing all or part of this book in a print format, then you must include on every physical page the following attribution:
    Access for free at https://openstax.org/books/principles-economics-3e/pages/1-introduction
  • If you are redistributing all or part of this book in a digital format, then you must include on every digital page view the following attribution:
    Access for free at https://openstax.org/books/principles-economics-3e/pages/1-introduction
Citation information

© Jan 23, 2024 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.