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

Suppose real GDP in 2021 was $$21.4 trillion and in 2022 it was 21.8 $$trillion. What was the growth rate of real GDP from 2021 to 2022? Use the formula $$ 	ext{Growth Rate} = \frac{	ext{GDP}_{2022} - 	ext{GDP}_{2021}}{	ext{GDP}_{2021}} 	imes 100 .$$

Accepted Answer

$$1.87\%$$

Question 3

According to the Rule of 70, how many years will it take for an economic variable to double if the annual growth rate is $$5\%$$? Use the formula $$ 	ext{Years to Double} = \frac{70}{	ext{Growth Rate}} .$$

Accepted Answer

14 years

Question 4

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

Accepted Answer

Increasing the number of hours worked per worker

Question 5

Why are property rights important for economic growth?

Accepted Answer

They ensure that individuals and firms have the incentive to invest and innovate.

Question 6

If the government runs a budget deficit, what is the likely effect on the market for loanable funds?

Accepted Answer

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

Question 7

Which equation correctly expresses investment in a closed economy?

Accepted Answer

$$ I = Y - C - G $$

Question 8

What is crowding out in the context of the loanable funds market?

Accepted Answer

A decline in private expenditure as a result of increases in government purchases.

Question 9

Which of the following is a service provided by the financial system?

Accepted Answer

Risk sharing

Question 10

During which phase of the business cycle do interest rates and wages typically rise faster than other prices, and firm profits begin to fall?

Accepted Answer

Near the end of an expansion

Question 11

Which of the following best describes the effect of a recession on inflation?

Accepted Answer

Inflation tends to decrease or even turn into deflation during recessions.

Question 12

Suppose the average annual growth rate of real GDP over three years is calculated using the rates $$-2.2\%$$, $$5.8\%$$, and $$1.9\%. $$What is the average annual growth rate?

Accepted Answer

$$1.83\%$$

Question 13

Which of the following is NOT a reason why economists have difficulty predicting recessions?

Accepted Answer

Business cycles are perfectly uniform and predictable.

Question 14

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

Accepted Answer

Increasing trade barriers and restricting market reforms

Question 15

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

Accepted Answer

A commercial bank

Question 16

What is the main reason that the effect of government budget deficits on the equilibrium interest rate is relatively small in practice?

Accepted Answer

Interest rates are influenced by global markets.

Question 17

Which of the following is a likely consequence of increased stability in the financial system?

Accepted Answer

Milder business cycles and fewer severe recessions

Question 18

If the supply of loanable funds increases, what happens to the equilibrium real interest rate and the quantity of loanable funds exchanged?

Accepted Answer

The equilibrium real interest rate falls and the quantity of loanable funds increases.

Question 19

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

Accepted Answer

Real GDP per capita

Question 20

Which of the following is a direct result of rising labor productivity?

Accepted Answer

An increase in real GDP per capita

Economic Growth, the Financial System, and Business Cycles: Chapter 10 Study Notes

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