Question 1

Suppose a country's real GDP per capita grows at a constant rate of 2% per year. According to the Rule of 70, approximately how many years will it take for the country's real GDP per capita to double?

Accepted Answer

$$70 \div 2 = 35$$ years

Question 2

Which of the following best describes the Cobb-Douglas production function?

Accepted Answer

$$Y = A K^\alpha N$$^{1-\alpha}$$, where A$ is total factor productivity, K$ is capital, N$ is labor, and 0$$ \u003c \alpha \u003c 1$$

Question 3

If a country increases its capital stock while holding labor constant, what will happen to output according to the Cobb-Douglas production function?

Accepted Answer

Output will increase, but at a decreasing rate due to diminishing marginal returns.

Question 4

Which of the following is NOT a source of growth in labor productivity?

Accepted Answer

Population growth

Question 5

According to Malthus, why were pre-industrial economies stuck in a poverty trap?

Accepted Answer

Any increase in living standards led to population growth, which reduced GDP per capita back to subsistence levels.

Question 6

Which of the following factors is most closely associated with long-run growth in GDP per capita in advanced economies?

Accepted Answer

Growth in total factor productivity (TFP)

Question 7

If a country experiences an increase in the supply of labor, holding all else constant, what is the likely effect on the real wage and total output?

Accepted Answer

The real wage falls and total output rises.

Question 8

Why do poor countries not always catch up to rich countries, even though diminishing marginal returns suggest they should grow faster?

Accepted Answer

Differences in total factor productivity (TFP) and institutions can prevent convergence.

Question 9

Which of the following is an example of investment in human capital?

Accepted Answer

A company providing on-the-job training for its workers.

Question 10

Suppose a country has the following Cobb-Douglas production function: $$Y = 2 K$$^{0.3}$$ N$$^{0.7}$$. If K$ increases by 10% and N$ increases by 10%, by what percentage does Y$ increase?

Accepted Answer

10%

Question 11

Which of the following best explains why technological change is considered the main engine of long-run growth in GDP per capita?

Accepted Answer

It increases total factor productivity, allowing more output from the same inputs.

Question 12

If a country’s institutions are unpredictable and lack transparency, what is the likely effect on economic growth?

Accepted Answer

Economic growth will be hindered due to reduced investment and innovation.

Question 13

Which of the following is a plausible reason why natural resources do not always lead to higher economic growth?

Accepted Answer

Resource wealth can cause currency appreciation, hurting other exports (Dutch disease).

Question 14

A country’s real GDP grew from $$10,000 to$$ $$20,000$$ over 35 years. What was the approximate average annual growth rate?

Accepted Answer

2%

Question 15

Which of the following policies would most likely increase a country’s total factor productivity (TFP)?

Accepted Answer

Investing in basic scientific research and improving the rule of law.

Question 16

If a country’s labor supply increases due to population growth, but there is no change in capital or technology, what is the likely effect on GDP per capita?

Accepted Answer

GDP per capita will remain unchanged or may decrease.

Question 17

Which of the following best describes the effect of diminishing marginal returns to capital?

Accepted Answer

Each additional unit of capital increases output by less than the previous unit.

Question 18

Which of the following is a key reason why centrally planned economies have historically experienced lower long-run growth than market-based economies?

Accepted Answer

Lack of economic freedoms and weak incentives for innovation.

Question 19

If a country’s real wage increases, what is the likely effect on the supply of labor?

Accepted Answer

The supply of labor increases as more people are willing to work more hours.

Economic Growth: Concepts, Measurement, and Sources

Study Guide - Practice Questions

Study Guide - Flashcards