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

If real GDP was $$21.4$$ trillion in 2021 and $$21.8$$ trillion in 2022, what was the growth rate of real GDP from 2021 to 2022? Use the formula $$	ext{Growth Rate} = \frac{	ext{New Value} - 	ext{Old Value}}{	ext{Old Value}} 	imes 100.$$

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 it grows at $$5\%$$ per year?

Accepted Answer

$$14$$ years

Question 4

Which factor is NOT directly responsible for increases in labor productivity?

Accepted Answer

Increase in government purchases

Question 5

India’s rapid economic growth after 1991 was primarily due to:

Accepted Answer

Market-based reforms and reduction in regulations

Question 6

Potential GDP is best defined as:

Accepted Answer

The level of real GDP attained when all firms are operating at capacity.

Question 7

In a closed economy, investment ($$I) $$can be expressed as $$I = Y - C - G. $$What do $$Y$$, $$C$$, and $$G$$ represent?

Accepted Answer

$$Y is $$GDP, $$C is $$consumption, $$G is $$government purchases

Question 8

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

Accepted Answer

A bank

Question 9

What is the main effect of a government budget deficit on the market for loanable funds?

Accepted Answer

It raises the equilibrium real interest rate and decreases funds loaned to firms.

Question 10

Which service does the financial system NOT provide?

Accepted Answer

Production of goods and services

Question 11

During a recession, which of the following typically occurs?

Accepted Answer

Firms decrease investment spending and households consume less.

Question 12

Which of the following best describes 'crowding out'?

Accepted Answer

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

Question 13

Which equation correctly represents private savings ($$S_{private}) in a $$closed economy?

Accepted Answer

$$S_{private} = Y + TR - C - T$$

Question 14

Which of the following is a plausible reason why the effect of government budget deficits on real interest rates is relatively small?

Accepted Answer

Interest rates are influenced by global markets.

Question 15

Which phase of the business cycle is characterized by rising real GDP?

Accepted Answer

Expansion

Question 16

During the business cycle, what typically happens to inflation during a recession?

Accepted Answer

Inflation falls or may even turn into deflation.

Question 17

Which of the following is NOT a reason economists struggle to predict recessions?

Accepted Answer

Business cycles are uniform and predictable.

Question 18

Which of the following contributed to the Great Moderation in the U.S. economy?

Accepted Answer

The increasing importance of services and establishment of unemployment insurance.

Question 19

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

Accepted Answer

$$1.83\%$$

Question 20

Which of the following is a real-world example of how economic prosperity affects health?

Accepted Answer

Richer nations can devote more resources to improving the health of their citizens.

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

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