Question 1

Which of the following best describes long-run economic growth?

Accepted Answer

The process by which rising productivity increases the average standard of living over time.

Question 2

What is the most commonly used measure of the average standard of living in macroeconomics?

Accepted Answer

Real GDP per capita

Question 3

If real GDP was $$21.4 trillion in 2021 and 21.8 $$trillion in 2022, what was the growth rate from 2021 to 2022? Use the formula $$\frac{	ext{Current} - 	ext{Previous}}{	ext{Previous}} 	imes 100.$$

Accepted Answer

$$1.9\%$$

Question 4

Using the Rule of 70, how many years will it take for an economic variable to double if the annual growth rate is $$5\%$$? Use the formula $$	ext{Number of years to double} = \frac{70}{	ext{Growth rate}}.$$

Accepted Answer

$$14$$ years

Question 5

Which of the following is NOT a factor that directly increases labor productivity?

Accepted Answer

Increase in government transfer payments

Question 6

What is the definition of potential GDP?

Accepted Answer

The level of real GDP attained when all firms are operating at capacity during normal hours and with a normal-sized workforce.

Question 7

In a closed economy, what is the formula for investment ($$I) in $$terms of GDP ($$Y$$), consumption ($$C$$), and government purchases ($$G$$)?

Accepted Answer

$$I = Y - C - G$$

Question 8

Which of the following is a service provided by the financial system that helps reduce risk for investors?

Accepted Answer

Risk sharing

Question 9

Suppose the government runs a budget deficit. What is the likely effect on the market for loanable funds?

Accepted Answer

The equilibrium real interest rate increases and the quantity of loanable funds loaned to firms decreases.

Question 10

What is 'crowding out' in the context of government budget deficits?

Accepted Answer

A decline in private expenditure as a result of increases in government purchases.

Question 11

Which equation correctly expresses total savings ($$S) in a $$closed economy?

Accepted Answer

$$S = Y - C - G$$

Question 12

During which phase of the business cycle do interest rates and wages typically rise faster than other prices, and firm profits begin to fall?

Accepted Answer

Near the end of an expansion

Question 13

What typically happens to the inflation rate during a recession?

Accepted Answer

It decreases or may even become negative (deflation).

Question 14

Why do economists find it difficult to predict recessions?

Accepted Answer

Business cycles are not uniform and leading indicators are unreliable.

Question 15

Which of the following contributed to the Great Moderation in the U.S. economy?

Accepted Answer

Increased importance of services, government stabilization policies, and a more stable financial system.

Question 16

If the average annual growth rates for real GDP over three years are $$-2.2\%$$, $$5.8\%$$, and $$1.9\%$$, what is the average annual growth rate over this period?

Accepted Answer

$$1.8\%$$

Question 17

Which of the following is a real-world example of how saving can promote economic growth?

Accepted Answer

Ebenezer Scrooge’s saving allowed society’s resources to be set toward investment, increasing productive capacity and future consumption.

Question 18

Which of the following is NOT a service provided by the financial system?

Accepted Answer

Price setting for consumer goods

Question 19

If technological change makes investments more profitable for firms, what happens in the market for loanable funds?

Accepted Answer

The demand for loanable funds increases, raising the real interest rate and the quantity of funds loaned.

Macroeconomics Chapter 10: Economic Growth, Financial System, and Business Cycles

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