Q: Suppose a country's GDP per capita grows at a constant rate of 3% per year. If its current GDP per capita is $20,000, what will it be in 10 years? Use the compound growth formula.

$$Y_{t+10} = 20,000 \times (1 + 0.03$$)^{10}$$ = 20,000 \times 1.3439 = 26,878$$

Q: Suppose the labor force in a country is 100 million, and 8 million people are unemployed. What is the unemployment rate?

$$Unemployment\ Rate = \frac{8}{100} \times 100\% = 8\%$$

Q: If the depreciation rate ($$d) is 5$$%, last year's capital stock ($$K_{last\ year}) $$was $$1,000$$, and investment ($$I) $$this year is $$200$$, what is the current capital stock ($$K_{now}$$)?

$$K_{now} = (1 - 0.05) \times 1,000 + 200 = 950 + 200 = 1,150$$

Question 1

Suppose a country's GDP per capita grows at a constant rate of 3% per year. If its current GDP per capita is $20,000, what will it be in 10 years? Use the compound growth formula.

Accepted Answer

$$Y_{t+10} = 20,000 	imes (1 + 0.03$$)^{10}$$ = 20,000 	imes 1.3439 = 26,878$$

Question 2

In the Solow growth model, what happens to the steady-state level of capital ($$K^*) $$and output ($$Y^*) if $$the savings rate ($$s) $$increases, holding all else constant?

Accepted Answer

Both $$K^*$$ and $$Y^*$$ increase

Question 3

Which of the following best illustrates the concept of 'creative destruction' as described in the study materials?

Accepted Answer

A new technology makes an old industry obsolete, leading to job losses in the old industry but overall economic growth

Question 4

Country A and Country B have identical geography and culture, but Country A has inclusive institutions while Country B has extractive institutions. According to the institutions hypothesis, what is the expected outcome?

Accepted Answer

Country A will have higher GDP per capita than Country B

Question 5

A bank has total assets of $$500 million and total liabilities of 470 $$million. What is its stockholders' equity?

Accepted Answer

$$Stockholders'\ Equity = 500\ million - 470\ million = 30\ million$$

Question 6

If the nominal interest rate is 6% and the inflation rate is 2%, what is the real interest rate according to the Fisher equation?

Accepted Answer

$$Real\ Interest\ Rate = 6\% - 2\% = 4\%$$

Question 7

Suppose the labor force in a country is 100 million, and 8 million people are unemployed. What is the unemployment rate?

Accepted Answer

$$Unemployment\ Rate = \frac{8}{100} 	imes 100\% = 8\%$$

Question 8

Which of the following would cause a rightward shift in the labor demand curve?

Accepted Answer

An increase in the price of the output produced by labor

Question 9

A country experiences rapid economic growth, but income inequality rises sharply. According to the study materials, what is a likely outcome?

Accepted Answer

Poverty may not decrease, and could even increase

Question 10

If a firm faces a product price ($$P) of$$ $$10$$ and the marginal product of labor ($$MP_L) is$$ $$5$$, what is the value of the marginal product of labor ($$VMP_L$$)?

Accepted Answer

$$VMP_L = 10 	imes 5 = 50$$

Question 11

Which of the following is NOT a proximate cause of prosperity according to the study materials?

Accepted Answer

Geography

Question 12

If the depreciation rate ($$d) is 5$$%, last year's capital stock ($$K_{last\ year}) $$was $$1,000$$, and investment ($$I) $$this year is $$200$$, what is the current capital stock ($$K_{now}$$)?

Accepted Answer

$$K_{now} = (1 - 0.05) 	imes 1,000 + 200 = 950 + 200 = 1,150$$

Question 13

Which of the following best describes the effect of extractive institutions on entrepreneurship?

Accepted Answer

They reduce the number of profitable entrepreneurs by weakening property rights and raising barriers to entry

Question 14

If the labor force participation rate (LFPR) is 60% and the adult population is 200 million, what is the size of the labor force?

Accepted Answer

$$Labor\ Force = 0.60 	imes 200\ million = 120\ million$$

Question 15

Which of the following would cause a leftward shift in the labor supply curve?

Accepted Answer

An increase in childcare costs

Question 16

A bank experiences a sudden, large volume of withdrawals, even though its assets exceed its liabilities. What is this situation called?

Accepted Answer

A bank run

Question 17

If the labor demand curve shifts left due to a recession and wages are downward rigid, what happens in the labor market?

Accepted Answer

Unemployment increases because the wage does not fall to clear the market

Question 18

Which of the following is an example of frictional unemployment?

Accepted Answer

A recent college graduate searching for her first job

Question 19

If a country's credit supply curve shifts right, what is the likely effect on the real interest rate and quantity of credit?

Accepted Answer

The real interest rate falls and the quantity of credit increases

Question 20

Which of the following is a liability for a commercial bank?

Accepted Answer

Customer deposits

Macroeconomics Study Guide: Economic Growth, Prosperity, Labor, and Credit Markets (Ch. 7–10)

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