Question 1

Which of the following best describes the 'rule of 72' and its application to economic growth?

Accepted Answer

It estimates the number of years required for a variable to double by dividing 72 by the annual growth rate (in percent).

Question 2

Suppose Canada's real GDP per capita grows at 2% per year, while France's grows at 1%. If both start at the same income level, approximately how many years will it take for Canada's income to be twice that of France's, according to the rule of 72?

Accepted Answer

72 years, because the difference in growth rates is 1%, so $$72 \div 1 = 72$$ years

Question 3

Which of the following is NOT considered one of the four fundamental sources of long-run economic growth?

Accepted Answer

Growth in government spending

Question 4

In the Neoclassical growth model, what is the role of technological change?

Accepted Answer

It is assumed to be exogenous and not explained within the model.

Question 5

Given the aggregate production function $$GDP = F_	heta(L, K, H)$$, which of the following statements is correct?

Accepted Answer

GDP depends on the total amounts of labour (L), physical capital (K), human capital (H), and the state of technology ($$	heta).$$

Question 6

If the real interest rate in the market for financial capital is above its equilibrium level $$i^*$$, what will occur?

Accepted Answer

The amount of desired saving will exceed desired investment, causing downward pressure on the real interest rate.

Question 7

Which equation correctly represents national saving in a closed economy with government spending and taxation?

Accepted Answer

$$National\ saving = NS = Y^* - C - G$$

Question 8

Suppose the government increases its purchases (G) while holding real GDP ($$Y^*) $$constant. What is the likely effect on national saving and investment in the long run?

Accepted Answer

National saving decreases, leading to a decrease in investment.

Question 9

Which of the following best illustrates the concept of diminishing marginal returns in the context of capital accumulation?

Accepted Answer

Each additional unit of capital increases output by a smaller amount, holding labour constant.

Question 10

In the context of advanced growth theories, what is a key difference compared to the Neoclassical growth model?

Accepted Answer

Advanced theories allow for increasing marginal returns to investment, while the Neoclassical model assumes diminishing marginal returns.

Question 11

Suppose an economy increases its rate of investment, shifting from a 2% to a 4% annual growth rate in real GDP. Using the formula $$Y = Y_0$(1+g)^N$$, by what percentage will GDP increase after 20 years compared to the original growth rate?

Accepted Answer

At 2%: $$Y = Y_0$(1.02)^{20}$$ \approx 1.4859Y_0$$; at 4%: Y$$ = $$Y_0(1.04$$)^{20}$$ \approx 2.1911Y_0. $$The percentage increase is $$((2.1911 - 1.4859)/1.4859) 	imes 100 \approx 47.5\%.$$

Question 12

Which of the following is a potential cost of economic growth, as discussed in the study materials?

Accepted Answer

The opportunity cost of forgone current consumption to allow for investment in capital goods.

Question 13

According to endogenous growth theories, what is the primary driver of long-term economic growth?

Accepted Answer

Technological change that is responsive to economic incentives and internal to the economic system.

Question 14

Which of the following best describes the relationship between saving, investment, and economic growth in the long run for a closed economy?

Accepted Answer

National saving equals investment, and both determine the equilibrium real interest rate.

Question 15

Which of the following is an example of 'embodied technical change'?

Accepted Answer

Replacing old machinery with new, more productive equipment as it wears out.

Question 16

A country is experiencing rapid economic growth, but also significant environmental degradation. According to the study materials, which policy approach is most consistent with sustainable growth?

Accepted Answer

Implementing price and policy incentives to direct technological change toward less polluting technologies.

Question 17

If an increase in immigration leads to a larger labour force but the capital stock and technology remain unchanged, what is the likely effect on GDP per capita according to the Neoclassical growth model?

Accepted Answer

GDP per capita will decrease due to diminishing marginal returns to labour.

Question 18

Which of the following statements about knowledge as a factor of production is correct, according to advanced growth theories?

Accepted Answer

Knowledge is a public good and is not necessarily subject to diminishing marginal returns.

Question 19

Which of the following best explains why small differences in annual growth rates can have large effects on living standards over time?

Accepted Answer

Because growth rates compound over time, leading to exponential increases in income and output.

Long-Run Economic Growth: Sources, Theories, and Policy Challenges

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