Q: Suppose the real GDP of a country increased from $$2,000$$ billion to $$2,100$$ billion over one year. What is the growth rate of real GDP for that year?

$$\frac{2,100 - 2,000}{2,000} \times 100 = 5\%$$

Q: Which of the following equations correctly calculates the growth rate of real GDP per person?

$$\text{Growth rate of real GDP per person} = \frac{\text{Real GDP per person in current year} - \text{Real GDP per person in previous year}}{\text{Real GDP per person in previous year}} \times 100$$

Question 1

Suppose the real GDP of a country increased from $$2,000$$ billion to $$2,100$$ billion over one year. What is the growth rate of real GDP for that year?

Accepted Answer

$$\frac{2,100 - 2,000}{2,000} 	imes 100 = 5\%$$

Question 2

If a country's real GDP per person grows at a constant rate of $$2\%$$ per year, according to the Rule of 70, approximately how many years will it take for the standard of living to double?

Accepted Answer

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

Question 3

Which of the following best describes potential GDP?

Accepted Answer

The level of real GDP produced when the economy is at full employment

Question 4

Which two components are used in the model to determine potential GDP?

Accepted Answer

Aggregate labor market and aggregate production function

Question 5

The aggregate production function shows the relationship between:

Accepted Answer

The quantity of labor employed and real GDP produced, holding other factors constant

Question 6

If the money wage rate is $$\20$ per hour and the price level is 2$, what is the real wage rate?

Accepted Answer

$$\frac{20}{2} = 10 (in $$base year dollars per hour)

Question 7

According to the law of diminishing returns, as more labor is added to a fixed amount of capital, what happens to the marginal product of labor?

Accepted Answer

It decreases

Question 8

Which of the following would cause a movement along the labor supply curve?

Accepted Answer

A change in the real wage rate

Question 9

If there is a surplus of labor in the market, what is the likely effect on the real wage rate?

Accepted Answer

The real wage rate will fall

Question 10

Suppose labor productivity increases due to technological advancement. What is the likely effect on potential GDP?

Accepted Answer

Potential GDP increases

Question 11

Which of the following is NOT one of the three main factors that influence labor productivity growth?

Accepted Answer

Increase in government budget deficit

Question 12

Which of the following best describes the classical growth theory?

Accepted Answer

Economic growth is temporary because population growth will eventually outpace resource growth, leading to stagnation

Question 13

A country with a low initial real GDP per person grows at a higher rate than a country with a high initial real GDP per person. This phenomenon is known as:

Accepted Answer

Convergence

Question 14

If the labor force increases while labor productivity remains constant, what is the effect on potential GDP?

Accepted Answer

Potential GDP increases

Question 15

Which of the following equations correctly calculates the growth rate of real GDP per person?

Accepted Answer

$$	ext{Growth rate of real GDP per person} = \frac{	ext{Real GDP per person in current year} - 	ext{Real GDP per person in previous year}}{	ext{Real GDP per person in previous year}} 	imes 100$$

Question 16

Which of the following is a key idea of the new growth theory?

Accepted Answer

Technological change results from choices and incentives, and can lead to sustained economic growth

Question 17

If the real wage rate increases, what is the expected effect on the quantity of labor supplied?

Accepted Answer

The quantity of labor supplied increases

Question 18

Suppose a country invests heavily in education, increasing its human capital. According to the aggregate production function, what is the likely effect on real GDP?

Accepted Answer

Real GDP increases for each level of labor employed

Question 19

Which of the following is a characteristic of the neoclassical growth theory?

Accepted Answer

Economic growth will slow as capital accumulates unless there is technological progress

Question 20

A country has a real GDP of $$5,000$$ billion and a population of $$250$$ million. What is its real GDP per person?

Accepted Answer

$$\frac{5,000,000,000,000}{250,000,000} = 20,000$$

Ch. 6: Economic Growth

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