Question 1

Which of the following is considered the 'best' (though not perfect) measure of a country's standard of living?

Accepted Answer

Real GDP per capita

Question 2

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

Accepted Answer

$$70 \div 2 = 35$$ years

Question 3

Which of the following is the most important factor in increasing labor productivity over the long run?

Accepted Answer

Technological advances

Question 4

If a country invests heavily in new machinery and equipment, which of the following is most likely to occur?

Accepted Answer

Labor productivity will increase

Question 5

Which of the following best describes the role of the financial system in economic growth?

Accepted Answer

It channels funds from savers to borrowers

Question 6

During which phase of the business cycle does inflation typically increase?

Accepted Answer

Expansion

Question 7

Which of the following sequences correctly describes the order of the business cycle phases and turning points?

Accepted Answer

Expansion, Peak, Recession, Trough

Question 8

A significant decline in economic activity spread across the country, lasting more than a few months, is best described as:

Accepted Answer

Recession

Question 9

Which of the following is NOT a direct function of the financial system?

Accepted Answer

Setting the minimum wage

Question 10

If the annual growth rate of real GDP per capita is 5%, how many years will it take for the standard of living to double, according to the Rule of 70?

Accepted Answer

$$70 \div 5 = 14$$ years

Question 11

Which of the following best explains why the unemployment rate often rises at the beginning of an economic expansion?

Accepted Answer

Discouraged workers reenter the labor force

Question 12

Which of the following is an example of an increase in labor productivity?

Accepted Answer

A farmer uses a tractor instead of hand tools to harvest crops

Question 13

Potential GDP is defined as:

Accepted Answer

The level of real GDP attained when all firms are producing at capacity

Question 14

Which of the following is a likely effect of a recession?

Accepted Answer

Unemployment increases

Question 15

If a country’s financial system fails to channel funds efficiently, what is the most likely consequence for economic growth?

Accepted Answer

Economic growth will slow due to lack of investment

Question 16

Which of the following best describes labor productivity?

Accepted Answer

The quantity of goods and services produced by one worker or by one hour of work

Question 17

Which of the following is NOT a component of the business cycle?

Accepted Answer

Inflation

Question 18

A country with a rapidly growing labor force but stagnant technology and capital per worker is likely to experience:

Accepted Answer

Little or no increase in labor productivity

Question 19

Which of the following is a function of financial intermediaries?

Accepted Answer

Channeling funds from savers to borrowers

Question 20

If the economy is currently at the peak of the business cycle, what is the next phase likely to be?

Accepted Answer

Recession

Chapter 10 Study Guide

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