Q: Suppose a country's GDP per capita in 2020 is $$10,000 and it grows at an annual rate of 3%. Using the exponential growth formula Y$$_{t+n} = Y_t \times (1+g)^n$, what will GDP per capita be in 2030?

$$Y_{2030} = 10,000 \times (1.03$$)^{10}$$ = 13,439$$

Q: Suppose the saving rate in an economy is 20%, the depreciation rate is 5%, and output is given by $$Y = 1000. $$What is the steady-state level of capital, $$K^*$$, if $$sY = dK$$?

$$K^* = \frac{sY}{d} = \frac{0.2 \times 1000}{0.05} = 4000$$

Question 1

Which of the following best describes exponential growth in the context of GDP per capita?

Accepted Answer

GDP per capita grows at a constant proportion or growth rate each year, compounding on previous growth.

Question 2

Suppose a country's GDP per capita in 2020 is $$10,000 and it grows at an annual rate of 3%. Using the exponential growth formula Y$$_{t+n} = Y_t 	imes (1+g)^n$, what will GDP per capita be in 2030?

Accepted Answer

$$Y_{2030} = 10,000 	imes (1.03$$)^{10}$$ = 13,439$$

Question 3

According to the Rule of 70, how many years will it take for a country’s GDP to double if its annual growth rate is 2%?

Accepted Answer

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

Question 4

If two countries start with the same GDP per capita, but one grows at 1% per year and the other at 2% per year for 50 years, what is the main implication of this difference?

Accepted Answer

Small differences in growth rates lead to large differences in GDP per capita over time due to compounding.

Question 5

In the Solow Growth Model, which of the following is NOT a source of sustained long-run economic growth?

Accepted Answer

Accumulation of physical capital

Question 6

Which equation represents the steady-state equilibrium condition in the Solow Growth Model?

Accepted Answer

$$s 	imes Y = d 	imes K$$

Question 7

A country increases its saving rate, s. According to the Solow Growth Model, what is the likely effect in the long run?

Accepted Answer

The steady-state level of GDP will increase, but the long-run growth rate will not change.

Question 8

Why can technological progress lead to sustained economic growth, according to the Solow Growth Model?

Accepted Answer

Because it is not subject to diminishing returns like capital and labor.

Question 9

If a country’s investment in physical capital increases but its technology and human capital remain unchanged, what will eventually happen to its GDP growth rate according to the Solow Model?

Accepted Answer

GDP growth will slow down and eventually stop due to diminishing marginal returns to capital.

Question 10

Which of the following best explains 'catch-up growth' as observed in some developing countries?

Accepted Answer

Poor countries grow faster as they adopt existing technologies and production methods from richer countries.

Question 11

Given the aggregate production function $$Y = A 	imes F(K, H)$$, which of the following would NOT increase GDP in the short run?

Accepted Answer

A decrease in the saving rate, s

Question 12

Suppose the saving rate in an economy is 20%, the depreciation rate is 5%, and output is given by $$Y = 1000. $$What is the steady-state level of capital, $$K^*$$, if $$sY = dK$$?

Accepted Answer

$$K^* = \frac{sY}{d} = \frac{0.2 	imes 1000}{0.05} = 4000$$

Question 13

Which of the following statements about the relationship between economic growth and poverty is supported by the study materials?

Accepted Answer

Economic growth is generally associated with reductions in poverty rates.

Question 14

If a country’s GDP per capita is $5,000 and grows at 7% per year, approximately how many years will it take to double according to the Rule of 70?

Accepted Answer

$$\frac{70}{7} = 10$$ years

Question 15

Which of the following is a key reason why you are more prosperous than your great-great-grandparents, according to growth decomposition evidence?

Accepted Answer

Technological progress has accounted for most of the growth in GDP per worker.

Question 16

In the Solow Growth Model, what happens if depreciation exceeds investment in a given year?

Accepted Answer

The capital stock will decrease.

Question 17

Which of the following best describes the process of technological change in the context of economic growth?

Accepted Answer

It is the invention, introduction, and adoption of new goods and services, building on existing knowledge.

Question 18

If a country’s savings rate increases, which of the following is most likely to occur in the Solow Model?

Accepted Answer

The steady-state level of capital and output will rise, but the long-run growth rate will not change.

Question 19

Which of the following is a limitation of using GDP per capita as a measure of prosperity?

Accepted Answer

It does not account for income inequality within a nation.

Economic Growth: Concepts, Measurement, and Implications

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