Question 1

Which of the following best describes long-run economic growth?

Accepted Answer

The process by which rising productivity increases the average standard of living over time.

Question 2

What is the most commonly used measure of the average standard of living in macroeconomics?

Accepted Answer

Real GDP per capita

Question 3

Potential GDP is defined as:

Accepted Answer

The level of real GDP attained when all firms are operating at capacity, with normal hours and a normal-sized workforce.

Question 4

If the growth rate of real GDP per capita is 2% per year, approximately how many years will it take for real GDP per capita to double according to the Rule of 70?

Accepted Answer

35 years

Question 5

Which formula correctly expresses the relationship between savings and investment in a closed economy?

Accepted Answer

$$Y - C - G = I$$

Question 6

Suppose a country’s real GDP per capita grows at 3% per year. Using the Rule of 70, what will the real GDP per capita be after 70 years if the initial value is $50,000?

Accepted Answer

$$400,000$$

Question 7

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

Accepted Answer

Price fixing

Question 8

A bond is best described as:

Accepted Answer

A financial security promising to repay a fixed amount of funds.

Question 9

Which of the following would increase the supply of loanable funds in the market for loanable funds?

Accepted Answer

An increase in household savings due to higher income.

Question 10

If the government increases taxes, what is the likely effect on the supply of loanable funds?

Accepted Answer

The supply of loanable funds will decrease.

Question 11

Which equation represents total savings in the economy, including both private and public savings?

Accepted Answer

$$S = Y - C - G$$

Question 12

Ebenezer Scrooge’s initial decision to save rather than consume can promote economic growth because:

Accepted Answer

It allows resources to be set toward investment, increasing productive capacity and future consumption.

Question 13

Which of the following is a financial intermediary?

Accepted Answer

A mutual fund

Question 14

If the demand for loanable funds increases due to new technology, what happens to the equilibrium interest rate and quantity of loanable funds?

Accepted Answer

Interest rate rises, quantity of loanable funds increases.

Question 15

Which of the following best explains why investment leads to long-term economic growth?

Accepted Answer

Investment increases physical and human capital, raising productivity and output over time.

Question 16

Suppose household income is $$100,000, consumption is 70$$,000, taxes are $$15,000, and transfer payments are 5$$,000. What is private saving ($$S_{private}$$)?

Accepted Answer

$$S_{private} = Y + TR - C - T = 100,000 + 5,000 - 70,000 - 15,000 = 20,000$$

Question 17

Which of the following is an example of liquidity in the financial system?

Accepted Answer

A saver quickly converts stocks into cash to pay for an emergency expense.

Question 18

If government spending increases without a corresponding increase in taxes, what is the likely effect on public saving?

Accepted Answer

Public saving will decrease and may become negative (dissaving).

Question 19

Which of the following shifts the supply of loanable funds to the right?

Accepted Answer

An increase in household income

Question 20

If actual GDP falls below potential GDP, what does this indicate about the economy?

Accepted Answer

The economy is operating below capacity, likely in a recession.

Chapter 10: Investment and Economic Activity – Long-Run Growth, Savings, and Financial Markets

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