Q: Given the following data, calculate the growth rate of real GDP from 2020 to 2021. Real GDP in 2020 was $63,526 and in 2021 was $70,213. Use the formula $\frac{\text{Real GDP in Current Period} - \text{Real GDP in Previous Period}}{\text{Real GDP in Previous Period}} \times 100$.

$\frac{70,213 - 63,526}{63,526} \times 100 = 10.54\%$

Question 1

Which of the following best defines long-run economic growth?

Accepted Answer

The process by which rising productivity increases the average standard of living.

Question 2

How is the most commonly used measure of the average standard of living in a country calculated?

Accepted Answer

Real GDP per capita, the amount of production per person adjusted for changes in the price level.

Question 3

Given the following data, calculate the growth rate of real GDP from 2020 to 2021. Real GDP in 2020 was $63,526 and in 2021 was $70,213. Use the formula $\frac{	ext{Real GDP in Current Period} - 	ext{Real GDP in Previous Period}}{	ext{Real GDP in Previous Period}} 	imes 100$.

Accepted Answer

$\frac{70,213 - 63,526}{63,526} 	imes 100 = 10.54\%$

Question 4

If a country has real GDP growth rates of 2.4%, 2.6%, and 1.6% over three consecutive years, what is the average annual growth rate? Use the formula $\frac{2.4\% + 2.6\% + 1.6\%}{3}$.

Accepted Answer

$\frac{2.4 + 2.6 + 1.6}{3} = 2.2\%$

Question 5

Why do small differences in annual economic growth rates result in large differences in living standards over time?

Accepted Answer

Because growth rates compound over time, leading to exponential increases in GDP per capita.

Question 6

According to the economic growth model, which two main factors affect labor productivity?

Accepted Answer

The quantity of capital per worker and the level of technology.

Question 7

Which equation best represents the production function in the economic growth model?

Accepted Answer

$Y = A \ast f(L, K)$

Question 8

In the per-worker production function, what happens when physical capital increases, assuming technology is constant?

Accepted Answer

Output per worker increases, but at a decreasing rate due to diminishing marginal returns.

Question 9

Which of the following is NOT subject to diminishing marginal returns in the per-worker production function?

Accepted Answer

Technology

Question 10

Why did the Soviet Union fail to sustain rapid economic growth despite heavy investment in capital?

Accepted Answer

It failed to implement new technologies due to lack of economic incentives and competition.

Question 11

What is the concept of 'economic catch-up'?

Accepted Answer

When economies with lower real GDP per capita sustain higher growth rates and catch up to richer countries.

Question 12

Which of the following is a key reason why many poor countries have not experienced rapid economic growth?

Accepted Answer

Weak institutions, wars and revolutions, poor public education and health, and low rates of saving and investment.

Question 13

Which government policy is most likely to foster economic growth according to Chapter 11?

Accepted Answer

Enhancing property rights and the rule of law.

Question 14

Suppose Country A and Country B both had a real GDP per capita of $5,000 in 1960. By 2019, Country A grew at 0.4% per year and Country B at 2.7% per year. Which country would have a higher standard of living in 2019, and why?

Accepted Answer

Country B, because higher growth rates compound over time, resulting in much higher GDP per capita.

Question 15

If a country wants to increase its labor productivity, which of the following should it prioritize?

Accepted Answer

Increasing the quantity of capital per worker and improving technology.

Question 16

Which of the following best describes the effect of technological change on the per-worker production function?

Accepted Answer

It shifts the production function upward, increasing output per worker at all levels of capital.

Question 17

Consider the production function $Y = A \ast f(L, K)$. If $A$ increases due to technological innovation, what is the expected impact on output $Y$?

Accepted Answer

Output $Y$ will increase, even if $L$ and $K$ remain constant.

Question 18

Which of the following is a plausible reason why some developing countries have not caught up to high-income countries, despite the predictions of the economic growth model?

Accepted Answer

They have weak institutions, frequent wars, poor education and health, and low rates of saving and investment.

Question 19

Which of the following policies would NOT be expected to promote economic growth?

Accepted Answer

Discouraging technological change.

Chapter 11: Long-Run Economic Growth – Sources and Policies

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