Q: Which of the following equations correctly represents the calculation of the growth rate of real GDP per capita?

$$ \text{Growth Rate} = \frac{\text{Real GDP per capita in Year 2} - \text{Real GDP per capita in Year 1}}{\text{Real GDP per capita in Year 1}} \times 100 $$

Question 1

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

Accepted Answer

Because of the compounding effect, where even small annual increases accumulate significantly over decades.

Question 2

According to the economic growth model, which two factors are the primary determinants of labor productivity?

Accepted Answer

The quantity of capital per hour worked and the level of technology.

Question 3

Suppose a country increases its capital per hour worked from $$K_1 to$$ $$K_2$$, but experiences diminishing returns. What happens to the increase in real GDP per hour worked?

Accepted Answer

The increase in real GDP per hour worked becomes smaller with each additional unit of capital.

Question 4

Which of the following is NOT a source of technological change according to the chapter?

Accepted Answer

Increasing the money supply.

Question 5

According to Paul Romer's new growth theory, why does knowledge capital result in increasing returns at the economy level?

Accepted Answer

Because knowledge capital is nonrival and nonexcludable, making it a public good.

Question 6

A government wants to encourage technological change. Which of the following policies would be most effective according to the chapter?

Accepted Answer

Subsidizing research and development.

Question 7

Which of the following best describes the concept of 'creative destruction' as developed by Joseph Schumpeter?

Accepted Answer

The process by which new products and technologies replace old ones, leading to economic growth.

Question 8

If a country has weak institutions and poor enforcement of property rights, what is the likely effect on its economic growth?

Accepted Answer

It will likely experience slow economic growth because entrepreneurs are less willing to invest.

Question 9

Which of the following equations correctly represents the calculation of the growth rate of real GDP per capita?

Accepted Answer

$$ 	ext{Growth Rate} = \frac{	ext{Real GDP per capita in Year 2} - 	ext{Real GDP per capita in Year 1}}{	ext{Real GDP per capita in Year 1}} 	imes 100 $$

Question 10

Why have some high-income countries stopped catching up to the United States in terms of real GDP per capita?

Accepted Answer

Because the United States has more flexible labor markets and is quicker to adopt new technologies.

Question 11

Which of the following is a likely reason why many low-income countries have not experienced rapid economic growth?

Accepted Answer

Wars, revolutions, and poor public education and health.

Question 12

What is the main benefit of globalization for low-income countries, as discussed in the chapter?

Accepted Answer

It allows countries to exit the cycle of low savings and investment through access to foreign investment.

Question 13

Which of the following government policies is LEAST likely to foster long-run economic growth?

Accepted Answer

Imposing strict controls on foreign investment.

Question 14

Suppose Country A has a real GDP per capita growth rate of 2.2% per year, while Country B has a growth rate of 1.61% per year. Over 50 years, which country will have a higher increase in real GDP per capita, and why?

Accepted Answer

Country A, because the compounding effect leads to a much larger increase over time.

Question 15

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

Accepted Answer

Poorer countries will grow faster than richer countries, allowing them to converge in terms of GDP per capita.

Question 16

Which of the following is an example of a government policy that protects intellectual property?

Accepted Answer

Providing patents for new inventions.

Question 17

If a country wants to increase its labor productivity in the long run, which of the following strategies would be most effective?

Accepted Answer

Investing in both physical capital and technological change.

Question 18

Which of the following statements about knowledge capital is TRUE?

Accepted Answer

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

Question 19

Which of the following is a potential argument against further economic growth in high-income countries?

Accepted Answer

It may lead to negative effects on the environment and depletion of natural resources.

Long-Run Economic Growth: Sources and Policies – Study Notes

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