Q: Suppose the real GDP of a country increased from $$10 trillion to 10.5 $$trillion in one year. What is the growth rate of real GDP for that year?

$$ \frac{10.5 - 10}{10} \times 100 = 5\% $$

Question 1

Suppose the real GDP of a country increased from $$10 trillion to 10.5 $$trillion in one year. What is the growth rate of real GDP for that year?

Accepted Answer

$$ \frac{10.5 - 10}{10} 	imes 100 = 5\% $$

Question 2

If a country’s real GDP per capita grows at an average annual rate of 2%, approximately how many years will it take for the standard of living to double, according to the Rule of 70?

Accepted Answer

$$ \frac{70}{2} = 35 $$ years

Question 3

Which of the following is most likely to increase a country’s potential GDP?

Accepted Answer

The creation of new technologies

Question 4

In the context of the per-worker production function, what is the effect of diminishing returns to capital?

Accepted Answer

Each additional unit of capital increases output by a smaller amount than the previous unit

Question 5

Which of the following best describes the relationship between saving and investment in a closed economy?

Accepted Answer

$$ S = Y - C - G $$ and $$ I = Y - C - G $$, so $$ S = I $$

Question 6

A government runs a budget deficit. What is the likely effect on the market for loanable funds?

Accepted Answer

The supply of loanable funds decreases, raising the real interest rate and crowding out private investment

Question 7

Which of the following is NOT a service provided by the financial system?

Accepted Answer

Price fixing

Question 8

If the real interest rate rises in the market for loanable funds, what is the most likely response from households and firms?

Accepted Answer

Households will supply more loanable funds, and firms will demand less

Question 9

Which of the following best explains why technological change is crucial for sustained long-run economic growth?

Accepted Answer

Technological change allows output per hour to increase even when capital per worker faces diminishing returns

Question 10

During a recession, which of the following typically occurs?

Accepted Answer

Firms cut back on investment and employment, leading to further declines in spending

Question 11

If a country’s real GDP per capita grows at 3% per year, how many years will it take for the standard of living to double, using the Rule of 70?

Accepted Answer

$$ \frac{70}{3} \approx 23.3 $$ years

Question 12

Which of the following is an example of human capital?

Accepted Answer

A worker’s accumulated knowledge and skills

Question 13

Suppose the government increases its purchases without raising taxes, resulting in a budget deficit. What is the likely effect on private investment, according to the loanable funds model?

Accepted Answer

Private investment decreases due to crowding out

Question 14

Which of the following is the correct formula for private saving in a closed economy?

Accepted Answer

$$ S_{private} = Y + TR - C - T $$

Question 15

Which of the following factors is most likely to shift the demand for loanable funds to the right?

Accepted Answer

A technological change that increases the expected return on investment

Question 16

Which of the following best describes the business cycle?

Accepted Answer

Alternating periods of economic expansion and economic recession

Question 17

During an economic expansion, what typically happens to inflation?

Accepted Answer

Inflation rises as demand for products increases

Question 18

Which of the following is a reason why the U.S. economy has become less volatile since the mid-1980s (the Great Moderation)?

Accepted Answer

Establishment of unemployment insurance and other transfer programs

Question 19

If the government runs a balanced budget, what is the value of public saving ($$ S_{public} $$)?

Accepted Answer

$$ S_{public} = 0 $$

Question 20

Which of the following best explains why the effect of government budget deficits on the equilibrium real interest rate is relatively small in the U.S.?

Accepted Answer

Interest rates are influenced by global markets, so even large deficits are a minor factor

Macroeconomics Chapter 10: Economic Growth, Financial System, and Business Cycles

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