Question 1

Which of the following best explains why small differences in annual economic growth rates can lead to large differences in living standards over time?

Accepted Answer

Because compounding causes even small annual growth rates to accumulate into large increases in real GDP per capita over long periods.

Question 2

Suppose Country A has a real GDP per capita of $$10,000 and grows at 2% per year, while Country B has a real GDP per capita of 10$$,000 and grows at 1% per year. After 35 years, approximately what will be the difference in their real GDP per capita?

Accepted Answer

$4,100

Question 3

According to the economic growth model, which of the following is the most important determinant of long-run increases in real GDP per capita?

Accepted Answer

Labor productivity

Question 4

Which of the following best describes the concept of diminishing returns to capital?

Accepted Answer

Each additional unit of capital increases output by a smaller amount than the previous unit.

Question 5

If a country is already highly capitalized, which of the following is most likely to increase its output per worker in the long run?

Accepted Answer

Technological change

Question 6

Which of the following is an example of creative destruction as described by Joseph Schumpeter?

Accepted Answer

A new technology replaces an old one, causing firms using the old technology to go out of business.

Question 7

Which of the following policies is most likely to encourage technological change and economic growth in a developing country?

Accepted Answer

Strengthening property rights and the rule of law

Question 8

Suppose a country’s real GDP is growing at 3% per year, while its population is growing at 4% per year. What is happening to the country’s standard of living?

Accepted Answer

It is falling because real GDP per capita is decreasing.

Question 9

Which of the following best describes knowledge capital?

Accepted Answer

It is nonrival and nonexcludable, leading to increasing returns at the economy level.

Question 10

A country with weak property rights and a corrupt court system is likely to experience which of the following outcomes?

Accepted Answer

Low economic growth due to lack of incentives for entrepreneurship

Question 11

Which of the following is an example of foreign direct investment (FDI)?

Accepted Answer

A German company builds a factory in Brazil.

Question 12

According to the catch-up effect predicted by the economic growth model, which of the following statements is true?

Accepted Answer

Countries with lower initial levels of real GDP per capita will grow faster than richer countries, all else equal.

Question 13

Which of the following is NOT a reason why some low-income countries fail to experience rapid economic growth?

Accepted Answer

High rates of saving and investment

Question 14

If a country moves from point A to point B on its per-worker production function, increasing capital per hour worked but holding technology constant, what does this movement represent?

Accepted Answer

An increase in output per hour due to more capital per hour worked

Question 15

Which of the following best explains why technological change is essential for sustained long-run economic growth?

Accepted Answer

Because capital accumulation is subject to diminishing returns, while technological change is not.

Question 16

Suppose the production function for an economy is $$ Y = A \cdot F(K, L) $$, where $$ Y  is $$output, $$ A  is $$technology, $$ K  is $$capital, and $$ L  is $$labor. If $$ A $$ increases while $$ K $$ and $$ L $$ remain constant, what happens to $$ Y $$?

Accepted Answer

$$ Y $$ increases.

Question 17

Which of the following government policies is most likely to prevent 'brain drain' in a developing country?

Accepted Answer

Investing in public education and health

Question 18

Which of the following is a plausible reason why the United States has experienced higher economic growth than many other high-income countries?

Accepted Answer

A more flexible labor market and efficient financial system

Question 19

If a country’s real GDP per capita is $20,000 and grows at 2% per year, how many years will it take to double its real GDP per capita? (Use the Rule of 70.)

Accepted Answer

35 years

Question 20

Which of the following is a potential negative consequence of rapid economic growth in high-income countries?

Accepted Answer

Increased environmental degradation

Economic Growth: Principles, Patterns, and Theories in Macroeconomics

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