Q: Suppose the real GDP of a country increased from $$20 trillion to 21 $$trillion over one year. What is the growth rate of real GDP for that year?

$$ \frac{21 - 20}{20} \times 100 = 5\% $$

Question 1

Suppose the real GDP of a country increased from $$20 trillion to 21 $$trillion over one year. What is the growth rate of real GDP for that year?

Accepted Answer

$$ \frac{21 - 20}{20} 	imes 100 = 5\% $$

Question 2

If a country’s real GDP per capita grows at a constant rate of 2% per year, approximately how many years will it take for real GDP per capita to double, according to the Rule of 70?

Accepted Answer

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

Question 3

Which of the following is the most commonly used measure of the average standard of living in a country?

Accepted Answer

Real GDP per capita

Question 4

Which of the following best explains why long-run economic growth is important for a nation?

Accepted Answer

It increases the average standard of living by raising productivity.

Question 5

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 real interest rate and crowding out private investment.

Question 6

Which of the following is NOT a service provided by the financial system?

Accepted Answer

Price fixing

Question 7

In a closed economy, which equation correctly represents the relationship between GDP, consumption, investment, and government purchases?

Accepted Answer

$$ Y = C + I + G $$

Question 8

Which of the following factors is most directly responsible for increases in labor productivity?

Accepted Answer

Increases in capital per hour worked and technological change

Question 9

Suppose a country experiences a technological breakthrough that makes production more efficient. What is the likely effect on the per-worker production function?

Accepted Answer

The function shifts upward, increasing output per hour worked at every level of capital.

Question 10

If the real interest rate in the market for loanable funds rises, what is the most likely effect on the quantity of loanable funds supplied and demanded?

Accepted Answer

Quantity supplied increases, quantity demanded decreases.

Question 11

Which of the following best describes the concept of 'crowding out'?

Accepted Answer

An increase in government borrowing raises interest rates and reduces private investment.

Question 12

During a recession, which of the following typically occurs?

Accepted Answer

Firms cut back on employment and investment.

Question 13

Which of the following equations correctly represents private saving in a closed economy?

Accepted Answer

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

Question 14

If a country’s real GDP per capita grows at 3% per year, how many years will it take for real GDP per capita to double?

Accepted Answer

$$ \frac{70}{3} \approx 23.3 $$ years

Question 15

Which of the following is an example of human capital?

Accepted Answer

A worker’s knowledge and skills

Question 16

What is potential GDP?

Accepted Answer

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

Question 17

Which of the following is a likely reason for the Great Moderation in the U.S. economy?

Accepted Answer

Establishment of unemployment insurance and stabilization policies

Question 18

If the government increases transfer payments (TR) while keeping taxes (T) and government purchases (G) constant, what is the effect on public saving?

Accepted Answer

Public saving decreases

Question 19

Which of the following best describes the business cycle?

Accepted Answer

Alternating periods of economic expansion and recession

Question 20

Suppose a country is experiencing diminishing returns to capital. Which policy is most likely to sustain long-run economic growth?

Accepted Answer

Investing in technological change

Macroeconomics Chapter 10: Economic Growth, Financial System, and Business Cycles

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