Q: If the growth rate of real GDP per capita is 5%, how many years will it take for real GDP per capita to double, according to the Rule of 70?

$$\text{Years to double} = \frac{70}{5} = 14$$

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.

Question 2

Suppose real GDP per capita in a country was $$10,000 in 2000 and 20$$,000 in 2020. Using the formula $$g = \left( \frac{	ext{Final Value}}{	ext{Initial Value}} \$$right)^{1/t}$$ - 1$$, where $$t is $$the number of years, what is the average annual growth rate?

Accepted Answer

$$g = (2$$)^{1/20}$$ - 1 \approx 0.035$$, or 3.5%

Question 3

Which of the following is NOT a factor that directly increases labor productivity?

Accepted Answer

Increasing the number of hours worked per worker.

Question 4

If the growth rate of real GDP per capita is 5%, how many years will it take for real GDP per capita to double, according to the Rule of 70?

Accepted Answer

$$	ext{Years to double} = \frac{70}{5} = 14$$

Question 5

Which of the following best explains the concept of 'crowding out' in the loanable funds market?

Accepted Answer

A government budget deficit increases the real interest rate and decreases private investment.

Question 6

In a closed economy, which equation correctly represents the relationship between investment, savings, and government spending?

Accepted Answer

$$I = Y - C - G$$

Question 7

Which of the following is a service provided by the financial system that helps facilitate long-run economic growth?

Accepted Answer

Risk sharing, liquidity, and information aggregation.

Question 8

Suppose the government increases its budget deficit. What is the most likely short-run effect on the market for loanable funds?

Accepted Answer

The supply of loanable funds decreases, raising the equilibrium real interest rate.

Question 9

Which of the following best describes the business cycle?

Accepted Answer

Alternating periods of economic expansion and recession.

Question 10

During a recession, which of the following typically occurs?

Accepted Answer

Unemployment rises and inflation falls.

Question 11

Which of the following is a reason why economists find it difficult to predict recessions?

Accepted Answer

Business cycles are not uniform and leading indicators are unreliable.

Question 12

If a country wants to sustain rapid economic growth, which of the following policies would be most effective?

Accepted Answer

Investing in infrastructure, education, and maintaining the rule of law.

Question 13

Which of the following is the best measure of the average standard of living in a country?

Accepted Answer

Real GDP per capita

Question 14

Which of the following statements about potential GDP is correct?

Accepted Answer

Potential GDP is the level of real GDP attained when all firms are operating at capacity.

Question 15

Suppose the real interest rate rises. What is the likely effect on the quantity of loanable funds demanded by firms?

Accepted Answer

The quantity of loanable funds demanded decreases.

Question 16

Which of the following is an example of a financial intermediary?

Accepted Answer

A mutual fund

Question 17

If the government collects more in taxes than it spends, what is this situation called?

Accepted Answer

A budget surplus

Question 18

Which of the following is a plausible effect of the Great Moderation in the U.S. economy?

Accepted Answer

Business cycles became milder and expansions lasted longer.

Question 19

Which of the following best explains why healthier citizens contribute to economic growth?

Accepted Answer

Healthier citizens are more productive, increasing labor productivity.

Question 20

If the average annual growth rate of real GDP is 2%, what is the approximate number of years it will take for real GDP to double?

Accepted Answer

$$	ext{Years to double} = \frac{70}{2} = 35$$

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

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