Question 1

Which of the following best describes the concept of 'creative destruction' as discussed in macroeconomics?

Accepted Answer

The process by which new innovations lead to the decline of older industries and firms.

Question 2

Suppose Country A has a real GDP per capita growth rate of 1.61% per year, while Country B has a growth rate of 2.2% per year. Over 50 years, which country will experience a greater increase in living standards, and why?

Accepted Answer

Country B, because a higher growth rate leads to a much larger increase in real GDP per capita over time.

Question 3

What was a key institutional change in England that helped trigger the Industrial Revolution, according to Douglass North?

Accepted Answer

The establishment of property rights and an independent court system after the Glorious Revolution.

Question 4

Which of the following is the best measure of a country's standard of living?

Accepted Answer

Real GDP per capita

Question 5

If a country's real GDP is rising by 2% per year while its population is rising at 7% per year, what is happening to its standard of living?

Accepted Answer

The country's standard of living is falling.

Question 6

Which of the following factors is NOT a source of technological change according to the economic growth model?

Accepted Answer

Increase in government regulation of markets.

Question 7

Consider the per-worker production function. What does the concept of diminishing returns to capital imply?

Accepted Answer

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

Question 8

Which of the following policies is most likely to encourage long-term economic growth in a developing country?

Accepted Answer

Strengthening property rights and the rule of law.

Question 9

Why did the Soviet Union experience slower economic growth in the long run despite initial rapid increases in output per worker?

Accepted Answer

Managers had little incentive to innovate due to lack of competition.

Question 10

According to the catch-up effect predicted by the economic growth model, what should happen to countries with lower initial levels of real GDP per capita?

Accepted Answer

They should grow faster than countries with higher initial levels of real GDP per capita.

Question 11

Which of the following is an example of foreign direct investment (FDI)?

Accepted Answer

American Airlines builds a hub in China.

Question 12

What is the main difference between knowledge capital and physical capital in terms of returns?

Accepted Answer

Knowledge capital is nonrival and nonexcludable, leading to increasing returns at the economy level.

Question 13

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

Accepted Answer

Technological change is not subject to diminishing returns like capital accumulation.

Question 14

Suppose a country invests heavily in education and health. What is a likely outcome according to the economic growth model?

Accepted Answer

Increased labor productivity and higher economic growth.

Question 15

Which of the following is a plausible reason why some high-income countries have stopped catching up to the United States in terms of GDP per capita?

Accepted Answer

Labor markets are less flexible and new technologies are adopted more slowly.

Question 16

If a country’s GDP per capita in 1960 was $$5,000 and grew at an average annual rate of 2% for 60 years, what would its GDP per capita be in 2020? Use the formula $$GDP_{final} = GDP_{initial} 	imes (1 + r)^t$$ where r$ is the growth rate and t$ is the number of years.

Accepted Answer

$$GDP_{final} = 5000 	imes (1 + 0.02$$)^{60}$$ \approx 16,600$$

Question 17

Which of the following is a key reason why globalization has helped some low-income countries grow faster?

Accepted Answer

Globalization allows for increased foreign investment, which can substitute for insufficient domestic savings.

Question 18

According to new growth theory, what drives technological change?

Accepted Answer

Economic incentives and market forces.

Question 19

Which of the following is an example of a government policy that promotes technological change?

Accepted Answer

Granting patents and copyrights to protect intellectual property.

Question 20

If a country has weak public schools and poor health care, what is the likely impact on its economic growth?

Accepted Answer

Workers are less productive, leading to slower economic growth.

Economic Growth: Principles, History, and Theories in Macroeconomics

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