Question 1

Suppose a country's real GDP grows at an annual rate of 4%. Using the rule of 72, approximately how many years will it take for the country's real GDP to double?

Accepted Answer

$$72 \div 4 = 18$$ years

Question 2

Which of the following is NOT considered a major determinant of long-run economic growth according to the study materials?

Accepted Answer

Growth in government spending

Question 3

In the neoclassical growth model, what is the effect of increasing only the labour force while holding capital constant?

Accepted Answer

GDP increases, but material living standards eventually decline due to diminishing returns

Question 4

If a country increases its rate of investment, what is the predicted effect on its long-run potential output according to the model discussed?

Accepted Answer

Potential output will grow at a higher rate

Question 5

Which of the following best describes the opportunity cost of economic growth?

Accepted Answer

The reduction in current consumption to allow for more investment and future growth

Question 6

Given the aggregate production function $$GDP = F_r(L, K, H)$$, what does the subscript $$r$$ indicate?

Accepted Answer

That the function depends on the state of technology

Question 7

Suppose national saving in a closed economy is given by $$NS = Y^* - C - G. If $$government purchases ($$G) $$increase while $$Y^*$$ and $$C$$ remain constant, what happens to national saving?

Accepted Answer

National saving decreases

Question 8

Which of the following statements about ideas in modern growth theory is correct?

Accepted Answer

Ideas are non-rivalrous and can be shared without diminishing their value

Question 9

In a globalized financial market, if Canada has an excess supply of financial capital at the world interest rate, what is the likely outcome?

Accepted Answer

Canada will experience a capital outflow as it acquires foreign assets

Question 10

According to the neoclassical growth model, what is the long-run effect of balanced growth in both capital and labour with constant technology?

Accepted Answer

GDP increases, but per capita output does not improve

Question 11

Which of the following is a key criticism of the Solow 'growth accounting' method?

Accepted Answer

It may underestimate technological change by attributing all growth to capital accumulation

Question 12

If the real interest rate in Canada rises above the world interest rate in a globalized market, what is the most likely result?

Accepted Answer

Financial capital will flow into Canada from abroad

Question 13

Which of the following is an example of a social cost of economic growth?

Accepted Answer

Workers' skills becoming obsolete due to technological change

Question 14

Which of the following best explains why small differences in annual growth rates can lead to large differences in income over time?

Accepted Answer

The effects of compounding over many years

Question 15

Which of the following is a direct implication of the law of diminishing marginal returns in the aggregate production function?

Accepted Answer

Each additional unit of capital or labour increases output by a smaller amount

Question 16

Suppose a country is experiencing rapid economic growth, but most of the income gains are accruing to the top 1% of earners. Which of the following is a likely consequence?

Accepted Answer

Rising income inequality

Question 17

Which of the following statements about the limits to economic growth is most consistent with the study materials?

Accepted Answer

Technological progress makes absolute limits to growth less likely

Question 18

In the long-run macroeconomic model, what adjusts to ensure that desired saving equals desired investment?

Accepted Answer

The real interest rate

Question 19

Which of the following is a characteristic of ideas as a source of economic growth?

Accepted Answer

They are non-rivalrous and often only partially excludable

Question 20

Which of the following is an example of endogenous technological change?

Accepted Answer

Firms investing in R&D in response to profit opportunities

Chapter 10: Long Run Economic Growth – Study Notes

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