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 small annual increases to accumulate into large total increases over decades.

Question 2

According to the economic growth model, which factor is most directly responsible for long-run increases in real GDP per capita?

Accepted Answer

Labor productivity, which depends on capital per hour worked and the level of technology.

Question 3

Suppose Country A has a real GDP of $$500 billion and a population of 50 million, while Country B has a real GDP of 400 $$billion and a population of 20 million. Which country has the higher standard of living, and why?

Accepted Answer

Country B, because its GDP per capita is higher: $$\frac{400	ext{ billion}}{20	ext{ million}} = 20$$,000$.

Question 4

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

Accepted Answer

American Airlines builds a hub in China.

Question 5

What is the main reason technological change can lead to sustained long-run economic growth, even when increases in capital per hour worked are subject to diminishing returns?

Accepted Answer

Technological change is not subject to diminishing returns and can continually increase output per hour worked.

Question 6

According to Joseph Schumpeter, what is the role of the entrepreneur in economic growth?

Accepted Answer

Entrepreneurs are central to economic growth by introducing new products and processes, unleashing creative destruction.

Question 7

If a country’s real GDP is rising by 2% per year while its population is rising at 7% per year, what is happening to its standard of living?

Accepted Answer

The country’s standard of living is falling because GDP per capita is decreasing.

Question 8

Which of the following policies is most likely to promote long-term economic growth in a low-income country?

Accepted Answer

Strengthening property rights and the rule of law.

Question 9

Why did the Industrial Revolution begin in England according to Douglass North?

Accepted Answer

Because the Glorious Revolution of 1688 led to secure property rights and an independent court system.

Question 10

Which of the following best describes knowledge capital?

Accepted Answer

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

Question 11

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

Accepted Answer

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

Question 12

Which of the following is a reason why some high-income countries have stopped catching up to the United States in terms of GDP per capita?

Accepted Answer

The United States has a more efficient financial system and less regulation, promoting faster adoption of new technologies.

Question 13

Which of the following is NOT a source of technological change according to the economic growth model?

Accepted Answer

Increasing the money supply.

Question 14

If a country is relatively low in capital per hour worked, what is the expected effect of increasing capital according to the per-worker production function?

Accepted Answer

It will have a large effect on output per hour worked.

Question 15

Which of the following best describes the concept of 'catch-up' in economic growth theory?

Accepted Answer

Countries with lower GDP per capita will grow faster than those with higher GDP per capita, leading to convergence.

Question 16

Which of the following is a plausible reason for lack of growth in poor countries?

Accepted Answer

Weak institutions, such as lack of property rights and rule of law.

Question 17

What is the primary purpose of patents and copyrights in promoting economic growth?

Accepted Answer

To allow firms to benefit from their own research and development, increasing their incentive to innovate.

Question 18

Which of the following statements about globalization is correct?

Accepted Answer

Globalization allows countries to exit the vicious cycle of low savings and investment through foreign investment.

Question 19

If a country’s output per hour worked increases due to both an increase in capital per hour worked and technological change, which of the following is true?

Accepted Answer

The country has moved to a higher point on the per-worker production function and shifted the function upward.

Question 20

Which of the following is the best measure of a country’s standard of living?

Accepted Answer

Real GDP per capita.

Economic Growth, Technological Change, and Creative Destruction: Principles of Macroeconomics (ECON 1104)

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