Question 1

Which of the following best describes the difference between economic growth and business cycles?

Accepted Answer

Economic growth measures the long-term increase in potential GDP, while business cycles refer to short-term fluctuations in real GDP around its trend.

Question 2

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

Accepted Answer

$$70 \div 2 = 35$$ years

Question 3

Which of the following is a key implication of diminishing marginal returns in the Cobb-Douglas production function?

Accepted Answer

Each additional unit of capital or labor increases output, but by a smaller amount than the previous unit.

Question 4

Suppose a country increases its population rapidly. What is the likely effect on GDP and GDP per capita, according to the study materials?

Accepted Answer

GDP will increase, but GDP per capita may remain unchanged or even decrease.

Question 5

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

Accepted Answer

Population growth

Question 6

If a country invests heavily in physical capital but does not experience technological progress, what does the Solow model predict about its long-run growth?

Accepted Answer

The country’s GDP per capita will eventually stagnate due to diminishing returns to capital.

Question 7

Which of the following best explains why Total Factor Productivity (TFP) is considered the main engine of long-run growth in GDP per capita?

Accepted Answer

TFP captures the effects of technological progress, efficiency, and institutional quality, which can sustain growth even when capital accumulation faces diminishing returns.

Question 8

According to Malthusian theory, what happens when living standards rise in a pre-industrial economy?

Accepted Answer

Population growth accelerates, eventually offsetting the gains in living standards and returning GDP per capita to its previous level.

Question 9

Which of the following institutional factors is LEAST likely to contribute to high Total Factor Productivity (TFP)?

Accepted Answer

Unchecked government power and lack of accountability

Question 10

If a country’s labor supply increases while capital and technology remain constant, what is the most likely effect on real wages and output?

Accepted Answer

Real wages decrease and output increases.

Question 11

Which of the following best describes the concept of convergence in economic growth?

Accepted Answer

Poorer countries tend to grow faster than richer countries due to higher marginal returns to capital, but only if they have similar TFP.

Question 12

Which of the following is a real-world example of how TFP can be negatively affected?

Accepted Answer

A country experiences frequent wars and political instability, discouraging investment and innovation.

Question 13

Suppose a country’s aggregate production function is given by $$Y = A K$$^{0.3}$$ N$$^{0.7}$$. If A$ increases by 10% while K$ and N$ remain constant, what happens to output Y$?

Accepted Answer

$$Y$$ increases by 10%

Question 14

Which of the following policies is most likely to increase a country’s long-run growth rate of GDP per capita?

Accepted Answer

Investing in research and development to foster technological innovation

Question 15

If a country’s capital stock increases but experiences diminishing marginal returns, what must also increase to sustain long-run growth in GDP per capita?

Accepted Answer

Total Factor Productivity (TFP)

Question 16

Which of the following best explains why some resource-rich countries do not experience high economic growth?

Accepted Answer

Resource wealth can lead to inequality and Dutch disease, which may hinder other sectors and reduce overall growth.

Question 17

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

Accepted Answer

$$2\%$$

Question 18

Which of the following is a plausible reason why not all emerging markets grow rapidly, despite having low capital stocks?

Accepted Answer

Their Total Factor Productivity (TFP) is low due to weak institutions or poor governance.

Question 19

Which of the following best describes the effect of technological change on the aggregate production function?

Accepted Answer

It shifts the production function upward, allowing more output to be produced with the same inputs.

Economic Growth: Concepts, Models, and Drivers in Macroeconomics

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