Chapter 9 Economic Growth 1 Economic growth is defined as



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Chapter 9

Economic Growth
1) Economic growth is defined as

A) a decrease in the rate of inflation.

B) an increase in employment.

C) a sustained expansion of production possibilities.

D) an increase in the wage rate.

E) an increase in the nation's population.

Answer: C
2) Economic growth is a sustained expansion of production possibilities, as measured by the increase in ________ over time.

A) real GDP

B) population

C) inflation

D) the price level

E) employment

Answer: A
3) Economic growth is defined as equal to the increase in

A) employment.

B) population.

C) real GDP.

D) the price level.

E) the inflation rate.

Answer: C
4) The growth rate of real GDP equals

A) [(employment in the current year - employment in previous year)/employment in previous year] × 100.

B) [(real GDP in current year - real GDP in previous year) ÷ real GDP in previous year] × 100.

C) [(real GDP in previous year - real GDP in current year) ÷ real GDP in previous year] × 100.

D) [(real GDP in current year - real GDP in previous year) ÷ real GDP in current year] × 100.

E) (real GDP in current year - real GDP in previous year) × 100.

Answer: B
5) If real GDP was $14 trillion last year and is $16 trillion this year, what is the growth rate?

A) 12.5 percent

B) -12.5 percent

C) 14 percent

D) $2 trillion

E) 47 percent

Answer: C



6) Using the data in the table above, the growth rate of real GDP for 2008 is equal to

A) 9.09 percent.

B) 7.00 percent.

C) 5.00 percent.

D) 4.76 percent.

E) 10.0 percent.

Answer: B
7) Using the data in the table above, real GDP per person in 2007 is

A) $70,000.

B) $71,429.

C) $75,000.

D) $70 trillion.

E) 7 percent.

Answer: A
8) Suppose India wants to measure how much the standard of living has changed over the last decade. Which piece of data should India use?

A) population.

B) real GDP per person.

C) real GDP.

D) wages.

E) inflation.

Answer: B
9) The growth rate of real GDP per person equals the

A) population growth rate plus the growth rate of real GDP.

B) change in the economic growth rate divided by the change in the population growth rate.

C) the economic growth rate per person divided by the change in the population growth rate.

D) growth rate of real GDP minus the growth rate of the population.

E) population growth rate plus the growth rate of real GDP then divided by the initial level of real GDP.

Answer: D
10) Assume the population growth rate is 2 percent and the real GDP growth rate is 5 percent. The change in standard of living, as measured by the growth rate in real GDP per person, is

A) 7 percent.

B) 2.5 percent.

C) 5 percent.

D) 3 percent.

E) -3 percent.

Answer: D
11) The Rule of 70 states that the level of a variable will double in

A) 70 years.

B) the number of years equal to the variable's annual rate of growth divided by 70.

C) the number of years equal to 70 divided by the variable's annual growth rate.

D) the number of years equal to the variable's annual growth rate minus 70.

E) the number of years equal to 70 multiplied by the variable's annual growth rate expressed as a decimal.

Answer: C
12) Approximately how long will it take Ethiopia to double its real GDP per person of $100 if its growth rate of real GDP per person is 0.9 percent?

A) 63 years

B) 77.7 years

C) 70 years

D) 109 years

E) 100 years.

Answer: B
13) If it took 20 years for real GDP to double, what was the growth rate of real GDP?

A) 4.5 percent

B) 3.0 percent

C) 3.5 percent

D) 4 percent

E) 5 percent

Answer: C
14) In a small western nation, labor productivity last year was $20 per hour and total labor hours were 400 hours. Hence, real GDP

A) was $80,000.

B) was $8,000.

C) was $20.

D) grew by 5%.

E) 00$416,000 over 52 weeks.

Answer: B
15) Population growth directly brings growth in ________ because the quantity of labor increases.

A) real GDP

B) labor productivity

C) real GDP per person

D) capital per hour of work

E) average hours per worker

Answer: A
16) Labor productivity is defined as

A) total real GDP.

B) real GDP per person.

C) total output multiplied by total hours of labor.

D) real GDP per hour of labor.

E) hours of work per person.

Answer: D
17) An increase in labor productivity

A) increases the standard of living.

B) decreases the standard of living.

C) might be the result of an increase in the quantity of labor.

D) generally occurs when physical capital decreases because firms must then hire more workers.

E) cannot occur without a corresponding increase in employment.

Answer: A
18) Real GDP is $700 billion, average hours worked per week is 42 and aggregate hours 150 billion hours. What is the economy's labor productivity?

A) $1.80 per hour

B) $3.75 per hour

C) $16.67 per hour

D) $46.67 per hour

E) $4.50 per hour

Answer: D
19) Labor productivity growth depends on

i. saving and investment.

ii. increases in human capital.

iii. technological growth.

A) i only

B) ii only

C) iii only

D) Both ii and iii

E) i, ii, and iii

Answer: E
20) A reason for an increase in labor productivity growth is

A) an increase in people's human capital.

B) a decrease in the capital stock so that firms must hire more workers.

C) growth in the supply of labor.

D) an increase in the population so that firms hire more workers.

E) an increase in the quantity of labor.

Answer: A
21) Human capital refers to the

A) accumulated skill and knowledge of human beings.

B) accumulated equipment used by human beings.

C) accumulation of money by human beings.

D) accumulation of money and equipment used by human beings.

E) accumulated financial capital people have acquired.

Answer: A
22) Expansion of a nation's human capital can be achieved through

A) education and job experience.

B) education and saving.

C) education and technology improvements.

D) education only.

E) nothing because human capital is determined by the skills people are born with.

Answer: A
23) Growth in physical capital depends most directly upon the

A) amount of saving and investment.

B) number of firms in the nation.

C) speed of population growth.

D) amount of government expenditures.

E) level of human capital.

Answer: A
24) An important condition required for economic growth is

A) a democratic government.

B) a totalitarian government.

C) a libertarian government.

D) economic freedom.

E) the incentive to limit international trade so that all economic growth remains within the country.

Answer: D
25) Economic freedom provides the

A) political system that encourages democracy.

B) social system that supports families.

C) production system that discourages property rights.

D) incentive system that encourages growth-producing activities.

E) necessary alternative to free markets.

Answer: D
26) Property rights

A) don't include intellectual property.

B) don't include financial property.

C) don't include physical property.

D) include physical, financial, and intellectual property.

E) slow the economic growth by placing limits on who can use what.

Answer: D
27) One way to achieve faster growth in GDP per person is to increase the

A) number of women working in the home rather than in the workforce.

B) growth rate of the quantity of money.

C) growth rate of human capital.

D) growth rate of the population.

E) limits on international trade in order to keep more of total spending on domestically produced goods.

Answer: C
28) One possible way of achieving faster economic growth is to

A) encourage saving.

B) protect the economy from international trade.

C) limit investment because investment adds nothing to production today.

D) eliminate property rights because they prevent people from using other people's ideas.

E) tax saving so that people spend more and businesses make more profit.

Answer: A
29) Which of the following is NOT a necessary precondition for economic growth?

A) economic freedom

B) democracy

C) property rights

D) free markets

E) ALL of the above are necessary preconditions.

Answer: B

Essay questions:
1) A nation's population was 250 million last year and is 255 million this year. If its real GDP was $8.5 trillion last year and is $8.8 trillion this year, what is its growth rate of real GDP per person?

Answer: Last year real GDP per person equaled ($8.5 trillion)/(250 million) = $34,000 per person. This year, real GDP per person is $34,510 per person. Thus the growth in real GDP per person equals × 100 = 1.5 percent.


2) U.S. real GDP per person grew rapidly in the early 1960s. The table above has U.S. real GDP and population for 1961 and 1962.

a. What was U.S. real GDP per person in 1961?

b. What was U.S. real GDP per person in 1962?

c. Between 1961 and 1962, how rapidly did U.S. real GDP per person grow?

Answer: a. U.S. real GDP per person in 1961 = ($2,432 billion)/(184 million) = $13,217.

b. U.S. real GDP per person in 1962 = ($2,578 billion)/(186 million) = $13,860.



c. The growth rate of real GDP per person equals × 100 = 4.9 percent.

3) Define labor productivity. Discuss the relationship between labor productivity, human capital growth, and technology change.

Answer: Labor productivity is real GDP per hour of labor, so it equals (real GDP) ÷ (aggregate hours). The expansion of human capital and the discovery of new technology are two factors that increase labor productivity. Increasing human capital increases labor productivity because workers' skills and knowledge increase, which allows them to produce more goods and services without boosting aggregate hours. Similarly, the discovery and use of new technologies allows workers to produce more goods and services without increasing aggregate hours.
4) List and explain the three factors that can increase labor productivity.

Answer: The three factors that can increase labor productivity are saving and investment in physical capital, expansion of human capital, and discovery of new technology. Saving and investing in physical capital increases the amount of capital per worker and thereby increases workers' productivity. Increasing the amount of human capital means that workers' skills, knowledge, and talents increase, which thereby increases their productivity. And, the discovery and use of new technologies allows workers to produce more goods and services than before, which increases their productivity.


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