Question 1

Which of the following is considered the 'best' (though not perfect) measure of a country's standard of living?

Accepted Answer

Real GDP per capita

Question 2

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

Accepted Answer

$$70 \div 2 = 35$$ years

Question 3

Which factor is considered the most important for long-run increases in labor productivity?

Accepted Answer

Technological advances

Question 4

A country has a real GDP per capita of $$10,000$$ and experiences an average annual growth rate of $$5\%. $$Using the Rule of 70, what will the real GDP per capita be in 14 years?

Accepted Answer

$$10,000 	imes 2 = 20,000$$

Question 5

Which of the following best describes 'potential GDP'?

Accepted Answer

The level of real GDP when all firms are producing at capacity during normal hours with a normal workforce

Question 6

Which of the following is NOT a direct function of the financial system in promoting economic growth?

Accepted Answer

Setting government fiscal policy

Question 7

During which phase of the business cycle does inflation typically increase?

Accepted Answer

Expansion

Question 8

Which sequence correctly describes the order of the business cycle phases and turning points?

Accepted Answer

Expansion, Peak, Recession, Trough

Question 9

If a country’s labor productivity increases due to the introduction of new machinery, which of the following is most likely to occur?

Accepted Answer

The standard of living will likely improve

Question 10

Which of the following best explains why unemployment often rises at the beginning of an economic expansion?

Accepted Answer

Discouraged workers reenter the labor force, but firms are slow to hire

Question 11

Suppose the annual growth rate of real GDP per capita in a country is $$3\%. $$Using the Rule of 70, how many years will it take for the standard of living to double?

Accepted Answer

$$70 \div 3 \approx 23.3$$ years

Question 12

Which of the following is a key reason why the financial system is important for students and future homeowners?

Accepted Answer

It provides access to student loans and mortgages

Question 13

Which of the following is NOT a component of the financial system?

Accepted Answer

Labor unions

Question 14

If a country’s real GDP per capita increased from $$6,764 in 1900 to$$ $$65,415 in 2022$$, what is the approximate fold increase in the standard of living?

Accepted Answer

$$65,415 \div 6,764 \approx 9.7$$ fold

Question 15

Which of the following best describes labor productivity?

Accepted Answer

The quantity of goods and services produced by one worker or one hour of work

Question 16

During a recession, which of the following typically occurs?

Accepted Answer

Inflation decreases and unemployment increases

Question 17

Which of the following is a direct result of the financial system channeling funds from savers to borrowers?

Accepted Answer

Greater investment in capital equipment and technology

Question 18

If a country’s potential GDP increases, which of the following is most likely to have occurred?

Accepted Answer

New factories and office buildings were built, and new technology was installed

Question 19

Which of the following is a correct application of the Rule of 70 to a real-world scenario?

Accepted Answer

If the inflation rate is 7%, prices will double in $$70 \div 7 = 10$$ years

Question 20

Which of the following is a plausible reason why technological advances are more important than increases in capital for long-run economic growth?

Accepted Answer

Technological advances can increase output without increasing the number of workers or machines

Economic Growth, the Financial System, and Business Cycles: Study Notes

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