Q: Which formula is used to calculate the growth rate of real GDP from one year to the next?

$$\frac{\text{Current Year Real GDP} - \text{Previous Year Real GDP}}{\text{Previous Year Real GDP}} \times 100\%$$

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

What is the most common measure of a country's average standard of living?

Accepted Answer

Real GDP per capita

Question 3

If real GDP per capita in Canada was $$20,000 in 1961 and 60$$,000 in 2021, by what factor did the average Canadian's purchasing power increase?

Accepted Answer

By a factor of 3

Question 4

Which formula is used to calculate the growth rate of real GDP from one year to the next?

Accepted Answer

$$\frac{	ext{Current Year Real GDP} - 	ext{Previous Year Real GDP}}{	ext{Previous Year Real GDP}} 	imes 100\%$$

Question 5

Using the Rule of 70, how many years will it take for an economic variable to double if the annual growth rate is 5%?

Accepted Answer

$$70 \div 5 = 14$$ years

Question 6

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

Accepted Answer

Increase in government budget deficit

Question 7

Why are property rights important for economic growth?

Accepted Answer

They ensure that individuals and firms can securely own and invest in resources, encouraging investment and innovation.

Question 8

Suppose the government increases its 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 funds loaned to firms.

Question 9

In a closed economy, which equation correctly expresses investment ($$I) in $$terms of GDP ($$Y$$), consumption ($$C$$), and government purchases ($$G$$)?

Accepted Answer

$$I = Y - C - G$$

Question 10

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

Accepted Answer

Risk sharing

Question 11

If the real interest rate increases, what is the expected effect on the quantity of loanable funds supplied by households?

Accepted Answer

It increases, as households are more willing to save at higher interest rates.

Question 12

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

Accepted Answer

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

Question 13

What is the definition of potential GDP?

Accepted Answer

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

Question 14

If technological change makes investments more profitable for firms, what happens in the market for loanable funds?

Accepted Answer

Demand for loanable funds increases, raising the real interest rate and the quantity of funds loaned.

Question 15

During a recession, what typically happens to the unemployment rate?

Accepted Answer

It rises, as firms reduce production and lay off workers.

Question 16

Which of the following best describes the business cycle?

Accepted Answer

Alternating periods of economic expansion and recession.

Question 17

What is the general agreement for defining a recession in Canada?

Accepted Answer

Two consecutive quarters of negative real GDP growth.

Question 18

How does the inflation rate typically behave during expansions and recessions?

Accepted Answer

Inflation rises during expansions and falls during recessions.

Question 19

If the government runs a balanced budget, what is the value of public saving ($$S_{public}$$)?

Accepted Answer

$$S_{public} = 0$$

Question 20

Which of the following is an example of crowding out in the market for loanable funds?

Accepted Answer

A government budget deficit raises interest rates, reducing private investment.

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

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