Q: Suppose real GDP in 2021 was $21.4 trillion and in 2022 it was $21.8 trillion. What is the growth rate of real GDP from 2021 to 2022? Use the formula $ \frac{\text{New Value} - \text{Old Value}}{\text{Old Value}} \times 100 $.

$ \frac{21.8 - 21.4}{21.4} \times 100 = 1.9\% $

Question 1

Which of the following best describes 'long-run economic growth' as discussed in Chapter 10?

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 is the growth rate of real GDP from 2021 to 2022? Use the formula $ \frac{	ext{New Value} - 	ext{Old Value}}{	ext{Old Value}} 	imes 100 $.

Accepted Answer

$ \frac{21.8 - 21.4}{21.4} 	imes 100 = 1.9\% $

Question 3

If the average annual growth rates of real GDP for three consecutive years are -2.2%, 5.8%, and 1.9%, what is the average annual growth rate over this period?

Accepted Answer

$ \frac{-2.2 + 5.8 + 1.9}{3} = 1.8\% $

Question 4

Using the Rule of 70, how many years will it take for an economic variable to double if the growth rate is 3.5%?

Accepted Answer

$ \frac{70}{3.5} = 20 $ years

Question 5

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

Accepted Answer

An increase in the minimum wage.

Question 6

Potential GDP is best defined as:

Accepted Answer

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

Question 7

Which of the following is a service provided by the financial system that helps promote economic growth?

Accepted Answer

Risk sharing, liquidity, and information.

Question 8

In a closed economy, the formula for investment is:

Accepted Answer

$ I = Y - C - G $

Question 9

If private saving is $S_{private} = Y + TR - C - T$ and public saving is $S_{public} = T - G - TR$, what is the total saving in the economy?

Accepted Answer

$ S = Y - C - G $

Question 10

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

Accepted Answer

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

Question 11

Suppose 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 reducing investment.

Question 12

During an economic expansion, which of the following typically occurs?

Accepted Answer

Demand for products is high relative to supply, resulting in higher inflation.

Question 13

Which of the following is a correct statement about the business cycle?

Accepted Answer

It consists of alternating periods of economic expansion and recession.

Question 14

Which of the following is a reason why economists find it difficult to predict recessions?

Accepted Answer

Business cycles are not uniform and leading indicators are unreliable.

Question 15

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

Accepted Answer

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

Question 16

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

Accepted Answer

A mutual fund that borrows from savers and lends to borrowers.

Question 17

Which of the following would most likely increase potential GDP?

Accepted Answer

An increase in the labor force and the capital stock.

Question 18

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

Accepted Answer

It rises, and often continues to rise even after the recession ends.

Question 19

Which of the following is a real-world example of how economic prosperity can improve health outcomes?

Accepted Answer

Richer nations can devote more resources to healthcare, increasing life expectancy.

Question 20

Which of the following best explains why the effect of government budget deficits on interest rates is relatively small in practice?

Accepted Answer

Interest rates are influenced by global markets, so even large deficits are minor in the global context.

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

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