Macroeconomics 2017 (Hubbard)
Chapter 10 Economic Growth, the Financial System, and Business Cycles
10.1 Long-Run Economic Growth
1) Which of the following statements describes the experiences of Corning, Inc. since it was established
in 1851?
A) strong uninterrupted growth in demand
B) long-run growth interrupted by periods of business cycle recession
C) little or no growth in the long run, and unaffected by the business cycle
D) little or no growth in the long run, but very vulnerable to the business cycle
2) Technological advances generally result in
A) decreased incomes.
B) increased life expectancy.
C) increased infant mortality rates.
D) increased average number of hours worked per day.
3) A good measure of the standard of living is
A) real GDP per capita.
B) nominal GDP per capita.
C) total real GDP.
D) total nominal GDP.
4) Since 1900, real GDP per capita has ________ and this measure ________ the actual growth in
standards of living in the United States over this time.
A) increased; understates
B) increased; overstates
C) decreased; understates
D) decreased; overstates
5) Since 1900, real GDP in the United States has grown
A) more rapidly than the population.
B) more slowly than the population.
C) as rapidly as the population.
D) in a random unpredictable manner relative to the population.
6) If real GDP per capita measured in 2009 dollars was $6,000 in 1950 and $48,000 in 2016, we would say
that in the year 2016, the average American could buy ________ times as many goods and services as
the average American in 1950.
A) 1/8
B) 4
C) 8
D) 12
7) If real GDP in a small country in 2015 is $8 billion and real GDP in the same country in 2016 is $8.3
billion, the growth rate of real GDP between 2015 and 2016
A) is 3.0%.
B) is 3.6%.
C) is 3.75%.
D) cannot be determined from the information given.
8) If real GDP per capita doubles between 2005 and 2020, what is the average annual growth rate of real
GDP per capita?
A) 4.7%
B) 10.5%
C) 15%
D) 21%
9) If you invest $10,000 in a bond that earns 8% interest per year, how many years will it take to double
your money?
A) 1 year and 3 months
B) 2 years and 6 months
C) 8 years
D) 8 years and 9 months
10) If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to
double real GDP will decrease from
A) 23.3 years to 17.5 years.
B) 28.0 years to 21.0 years.
C) 11.2 years to 10.8 years.
D) 23.3 years to 20.6 years.
Table 10-1
Year
Real GDP
(billions of
2000 dollars)
2013
$8,700
2014
8,875
2015
9,000
2016
9,280
11) Refer to Table 10-1. Using the table above, what is the approximate growth rate of real GDP from
2015 to 2016?
A) 1%
B) 2%
C) 3%
D) 4%
12) Refer to Table 10-1. Using the table above, what is the approximate average annual growth rate
from 2013 to 2016?
A) 1%
B) 1.5%
C) 2%
D) 3%
13) Increases in real GDP since 1900 can actually underestimate growth in the standard of living for
Americans since 1900 because
A) the level of pollution in 1900 was much higher than it is today.
B) the crime rate was higher in 1900 than it is today.
C) goods and services are more expensive today as compared to 1900.
D) the quality of health care that exists today was not available in 1900.
14) Economist Robert Fogel has estimated that by the year 2040, individuals in the United States will be
spending
A) more time in the workforce and more time in leisure activities than they do today.
B) less time in the workforce and less time in leisure activities than they do today.
C) less time in the workforce and more time in leisure activities than they do today.
D) more time in the workforce and less time in leisure activities than they do today.
15) If real GDP grows by 3% in 2014, 3.2% in 2015, and 2.5% in 2016, what is the average annual growth
rate of real GDP?
A) 2.6%
B) 2.9%
C) 3.1%
D) 4.2%
16) Countries with high rates of economic growth tend to have
A) a labor force that is more productive.
B) a lower life expectancy at birth.
C) low rates of technological advancement.
D) a declining incidence of business cycle fluctuations.
17) According to the “Rule of 70,” how many years will it take for real GDP per capita to double when
the growth rate of real GDP per capita is 5%?
A) less than 1 year
B) 5 years
C) 14 years
D) 35 years
18) The quantity of goods and services that can be produced by one worker or by one hour of work is
referred to as
A) technology.
B) labor productivity.
C) real GDP.
D) human capital.
19) Which of the following increases labor productivity?
A) an increase in the aggregate hours of work
B) decreases in the availability of computers and factory buildings
C) inventions of new machinery, equipment, or software
D) a decline in the health of the population
20) The total amount of physical capital available in a country is know as the country’s
A) labor productivity.
B) savings.
C) investment.
D) capital stock.
21) What two factors are the keys to determining labor productivity?
A) the business cycle and the growth rate of real GDP
B) the growth rate of real GDP and the interest rate
C) technology and the quantity of capital per hour worked
D) the average level of education of the workforce and the price level
7
22) If labor productivity growth slows down in a country, this will
A) accelerate the increase in real GDP per capita.
B) accelerate the increase in nominal GDP.
C) slow down the increase in real GDP per capita.
D) slow down the increase in nominal GDP.
23) If labor productivity growth slows down in a country, this means that the growth rate in ________
has declined.
A) labor force participation
B) the quantity of goods or services that can be produced by one hour of work
C) the working-age population
D) nominal GDP
Article Summary
According to the Office for National Statistics in the United Kingdom, productivity in the UK in 2014
was well below the average of the G7 countries, only faring better than Japan. The G7 is a group of
the seven most industrialized countries, and includes Canada, France, Germany, Italy, Japan, the
United Kingdom, and the United States. Compared to the G7 average, the UK was 20% less
productive per hour worked, and output was also 20% worse when measured on a per worker basis.
The productivity gap was the largest for the UK since estimates began in 1991. Worker productivity
was lower in all of the G7 nations in 2014 than it would have been had trends prior to the 2007-2009
recession continued, with the productivity gap of 18 percent in the UK significantly higher than the
7% gap for the other G7 nations. In terms of output per hour worked, the UK was behind Germany,
France, and the United States by 32 to 33 percentage points.
Source: “UK’s poor productivity figures show challenge for government,” Guardian, September 18,
2015.
24) Refer to the Article Summary. Labor productivity in the UK was well below the productivity in five
of the other G7 nations, only faring better than Japan.. Labor productivity is important for an economy
because an increase in labor productivity
A) will increase the labor force participation rate.
B) allows the average consumer to increase consumption.
C) will create short-run, but not long-run, economic growth.
D) will increase output and decrease wages in the long run.
25) Refer to the Article Summary. ________ depend on increases in labor productivity.
A) Advances in technology
B) Decreases in the inflation rate
C) Decreases in the unemployment rate
D) Increases in real GDP per capita
26) Which of the following is an example of human capital?
A) a computer
B) a factory building
C) a college education
D) a software program
27) Human capital refers to which of the following?
A) the quantity of goods and services that can be produced by one worker or by one hour of work
B) the accumulated knowledge and skills workers acquire from education and training or from their life
experiences
C) manufactured goods that are used to produce other goods and services
D) physical equipment that is made by human laborers, not machines
28) Long-run economic growth requires all of the following except
A) technological change.
B) increases in capital per hour worked.
C) government provision of secure property rights.
D) political instability.
29) Which of the following would contribute to a sustained high rate of economic growth in the long
run in an economy?
A) growth in capital per hour worked accompanied by technological change
B) increases in labor force participation rates as workers who are out of the labor force pursue rising
wages
C) a shift of workers in the economy from the agricultural sector to the nonagricultural sector
D) an influx of immigrant labor into an economy without any accompanying technological change
30) In terms of economic growth, the key measure of the standard of living is
A) real GDP.
B) nominal GDP.
C) real GDP per capita.
D) nominal GDP per capita.
31) India’s rapid growth can be explained by
A) reduced regulations and market-based reforms.
B) investment in human capital from 1947 through 2015.
C) the movement of workers from the agricultural sector to the manufacturing sector.
D) an increase in labor force participation.
32) Which of the following does not describe governmental policy actions that are helpful in supporting
growth in an economy? Governmental policies that
A) avoid playing any role in developing communication systems.
B) provide secure rights to private property.
C) establish an independent court system that enforces contracts.
D) facilitate the development of an efficient financial system.
33) Potential GDP refers to
A) the level of GDP attained when all firms are producing at capacity.
B) the level of GDP attained by the country with the highest growth in real GDP in a given year.
C) the difference between the highest level of real GDP per quarter and the lowest level of real GDP per
quarter within any given year.
D) the extent to which real GDP is above or below nominal GDP.
34) Growth in potential GDP in the United States is estimated to be about
A) 8.25% per year.
B) 5.0% per year.
C) 3.2% per year.
D) 1.5% per year.
35) Actual real GDP will be above potential GDP if
A) firms are producing below capacity.
B) firms are producing at capacity.
C) firms are producing above capacity.
D) inflation is rising.
36) According to the “Rule of 70,” it will take 4 years for real GDP per capita to double when the growth
rate of real GDP per capita is
A) 4 percent.
B) 12.25 percent.
C) 17.5 percent.
D) 28 percent.
37) The only way the standard of living of the average person in a country can increase is if ________
increases faster than ________.
A) production; population
B) population; GDP per capita
C) population; production
D) population; income
38) When production in an economy grows more quickly than the population in that economy, which of
the following must be occurring?
A) Real GDP is falling.
B) Incomes are growing at a slower rate than the population.
C) Real GDP per capita is rising.
D) Living standards are falling.
39) Which of the following describes the growth in real GDP per person in the United States from 1900
to the present?
A) It has decreased.
B) It has increased by more than eight times.
C) It has doubled.
D) It has increased twenty times.
40) The best measure of the standard of living is
A) nominal GDP.
B) real GDP.
C) nominal GDP per capita.
D) real GDP per capita.
41) According to Robert Fogel, economic growth ________ health, and health ________ economic
growth.
A) improves; worsens
B) improves; improves
C) worsens; improves
D) worsens; worsens
42) Suppose that real GDP for 2015 was $10,000 billion and real GDP for 2016 was $11,000 billion. What
is the rate of growth of real GDP between 2015 and 2016?
A) 1%
B) 2%
C) 5%
D) 10%
43) Suppose that real GDP for 2015 was $10,000 billion and real GDP for 2016 was $9,500 billion. What is
the rate of growth of real GDP between 2015 and 2016?
A) -10%
B) –5%
C) –2%
D) –1%
44) If GDP grew 3% in 1970, 2.2% in 1971 and 2.5% in 1972 then, what is the average annual growth rate
over this period?
A) 5%
B) 4%
C) 2.6%
D) -2.2%
Table 10-2
Year
Real GDP
(billions of
2000 dollars)
2013
$10,100
2014
10,950
2015
11,425
2016
11,300
45) Refer to Table 10-2. Using the table above, what is the approximate growth rate of real GDP from
2014 to 2015?
A) 1%
B) 2%
C) 3%
D) 4%
46) Refer to Table 10-2. Using the table above, what is the approximate growth rate of real GDP from
2015 to 2016?
A) –2%
B) –1%
C) 1%
D) 2%
47) Refer to Table 10-2. Using the table above, what is the approximate average annual growth rate
from 2013 to 2016?
A) –1%
B) 1%
C) 2%
D) 4%
48) If GDP grows at a rate of 3% per year, approximately how long will it take for GDP to double in
size?
A) 12 years
B) 21 years
C) 23 years
D) 35 years
49) If an economy is growing at a rate of 2.5% per year, how long will it take the economy to double in
size?
A) 60 years
B) 43 years
C) 36 years
D) 28 years
50) The rule of 70 states that
A) it takes an economy 70 years to double its real GDP.
B) the number of years it takes an economy to double in size is 70 divided by the growth rate.
C) the number of years it takes an economy to double in size is the growth rate times 70.
D) the number of years it takes an economy to double in size is the growth rate divided by 70.
51) If, between 2006 and 2016, the economy’s real GDP grew from $20 billion to $40 billion, what was
the average annual growth rate in the economy?
A) 3%
B) 7%
C) 20%
D) 100%
52) If GDP is currently $13 trillion and is growing at a rate of 2.3% per year, how long will it take GDP
to reach $26 trillion?
A) about 15 years
B) about 17 years
C) about 25 years
D) about 30 years
53) Labor productivity is
A) the quantity of output produced in one hour by several workers.
B) the quantity of capital one worker can produce in one day.
C) the quantity of output produced by one worker or by one hour of work.
D) the quantity of output produced in one hour by one machine.
54) Labor productivity will increase if the ________ increases and ________.
A) quantity of capital per hour worked; technology improves
B) quantity of labor per unit of capital; technology improves
C) quantity of capital per hour worked; immigration increases while capital is fixed
D) quantity of labor per unit of capital; immigration increases while capital is fixed
55) Workers in high-income countries have ________ to work with than do workers in low-income
countries.
A) less physical capital
B) more physical capital
C) more labor
D) more labor and less physical capital
56) What is human capital?
A) a slang term for the underground labor market
B) manufactured goods that are used to produce other goods
C) accumulated knowledge and skills acquired by a worker
D) the manager or owner of a business
57) Which of the following is most likely to be able to sustain economic growth in an economy?
A) sustained increases in the labor force participation rate
B) technological change
C) increases in capital per hour worked
D) accumulations of economic resources
58) Which of the following will result in an increase in labor productivity?
A) a decrease in the number of people attending institutions of higher education
B) a decline in the amount of human capital per worker
C) an increase in technology
D) a decline in the capital stock per hour worked
59) Potential GDP is defined as
A) the maximum of GDP that the economy can produce.
B) the amount of GDP produced if there is no frictional unemployment.
C) the level of GDP attained when all firms are producing at capacity.
D) the amount of GDP produced if there is no structural unemployment.
60) Potential GDP is estimated to grow at a rate of 3.2% in the United States. Actual GDP in the U.S.
A) always grows at a slower rate than potential GDP.
B) always grows at a faster rate than potential GDP.
C) always grows at the same rate as potential GDP.
D) is the same as potential GDP if all firms in the economy were working at capacity.
61) Potential GDP in the United States
A) does not change over time.
B) grows as the economy grows.
C) changes over a given business cycle.
D) declines over time.
62) Centrally planned economies tend to grow more quickly than market economies.
63) Accumulating a greater number of inputs will ensure that an economy will experience economic
growth.
64) Increases in capital per hour worked cannot sustain high rates of economic growth unless
accompanied by technological change.
65) Potential GDP is the maximum output a firm is capable of producing.
66) Potential GDP is always greater than real GDP in an economy.
67) The key to sustained economic growth is increasing labor productivity.
68) Market economies tend to grow more quickly than centrally-planned economies.
69) Economic growth depends more on technological change than on increases on capital per hour
worked.
70) How has economist Robert Fogel explained that economic growth is connected to life expectancy?
Based on this connection, in what country would you expect to have a longer life expectancy, the United
States or India? Explain.
71) What is productivity? How does a country’s standard of living relate to productivity?
72) What factors increase potential GDP? Include a definition of potential GDP in your answer.
73) When potential GDP increases, is it necessarily the case that real GDP increases as well? Explain.