Macroeconomics 2nd Edition Acemoglu Test Bank

Macroeconomics 2nd Edition Acemoglu
Test Bank
Visit to download the full and correct content document:
https://testbankdeal.com/download/macroeconomics-2nd-edition-acemoglu-test-bank/
Macroeconomics, 2e (Acemoglu)
Chapter 7 Economic Growth
7.1 The Power of Economic Growth
1) Real GDP refers to GDP adjusted for changes in ________.

A) tax rates
B) prices
C) net imports
D) ruling political party
Answer: B
Difficulty: Easy
AACSB: Analytical Thinking
Topic: The Power of Economic Growth
2) Changes in the price level are the sole factor in determining ________.
A) nominal GDP
B) monetary policy
C) real GDP
D) trade policy
Answer: B
Difficulty: Easy
3) Comparing GDPs over time requires the use of a ________.

A) base year
B) recession and boom period
C) worker productivity index
D) linear growth model
Answer: A
Difficulty: Easy
4) The advantage of using real GDP over nominal GDP is that it ________.
A) is easier to calculate
B) can be compared over time
C) takes the distribution of income into account
D) takes into account changes in the ruling political party
Answer: B
Difficulty: Easy
1
Copyright © 2018 Pearson Education, Inc.
5) Economic growth refers to an increase in ________.
A) prices
B) tax rates
C) population
D) GDP per capita
Answer: D
Difficulty: Easy
6) Country A's GDP per capita at the beginning of 2005 was $22,150. At the beginning of 2006, it increased
to $27,600. Calculate Country A's growth rate of GDP per capita between 2005 and 2006.
Answer: In this case, the growth rate of GDP per capita of Country A = ($27,600 − $22,150)/$22,150 =
0.2460 = 24.60 percent.
Difficulty: Easy
AACSB: Application of Knowledge
7) Suppose the annual growth rate of an economy is expected to be 3 percent. This implies that the
economy's ________ is expected to ________ by 3 percent annually.
A) GDP per capita; increase
B) price level; increase
C) capital stock; increase
D) unemployment rate; decline
Answer: A
Difficulty: Easy
8) Which of the following statements is true of the U.S. economy over the past 200 years?
A) Its GDP per capita has increased.
B) Its GDP per capita has decreased.
C) There has been no contraction in the economy.
D) The growth rate of GDP has been more than 10 percent per year.
Answer: A
Difficulty: Easy
Topic: A First Look at U.S. Growth
9) Which of the following characterized the U.S. economy in the decades following the Great Depression?
A) The price level has decreased steadily over time.
B) Despite fairly constant growth, major economic downturns have produced net negative growth.
C) The economy was permanently and irreparably damaged by the events of the Great Depression.
D) Longer-run movements have indicated sustained and steady growth.
Answer: D
Difficulty: Easy
2
10) If GDP per capita in year T is represented by YT and the GDP per capita in the following year is
represented by YT+1, then the formula for calculating the growth rate between these two years is
________.
A) (YT+1/YT)/100
B) (YT+1 − YT )/YT
C) (YT+1 + YT)/YT
D) (YT+1 + YT)/YT+1
Answer: B
Difficulty: Easy
The following table shows the GDP per capita of country X for 3 years.
Year GDP per capita

2015 $1,500
2016 $1,745
2017 $2,050
11) Refer to the table above. At what rate did the country grow between 2015 and 2016?
A) 12.45 percent
B) 15.95 percent
C) 16.33 percent
D) 18 percent
Answer: C
Difficulty: Medium
12) Refer to the table above. At what rate did the country grow between 2016 and 2017?
A) 13.63 percent
B) 15.55 percent
C) 17.47 percent
D) 19.24 percent
Answer: C
Difficulty: Medium
13) Refer to the table above. If country X is expected to grow by 19 percent between the years 2017 and
2018, what is the expected GDP per capita for the year 2008?
A) $1,882
B) $2,439.50
C) $2,763.90
D) $3,015
Answer: B
Difficulty: Medium
3
14) Which statement best describes the effect of the Great Depression on U.S. growth?
A) The Great Depression reversed all growth that had been experienced over the previous 100 years.
B) The U.S. economy grew at the same rate during the Great Depression as during the rest of the
twentieth century.
C) The Great Depression temporarily reversed U.S. growth, but the U.S. economy grew steadily before
and after it.
D) The Great Depression led to slow growth in the U.S. for the following 50 years.
Answer: C
Difficulty: Easy
15) Which of the following describes the effect of the Great Depression on economic growth?
A) The Great Depression resulted in permanently lower growth rates for the United States.
B) The Great Depression halted permanently the United States' sustained growth.
C) The Great Depression began the United States' sustained growth.
D) The Great Depression was a temporary event with no long-run effect on economic growth.
Answer: D
Difficulty: Medium
16) The annual growth rate of U.S. real GDP per capita over the past 60 years has averaged around
________.
A) 0 percent
B) 2 percent
C) 4 percent
D) 6 percent
Answer: B
Difficulty: Easy
17) Suppose GDP per capita is $2,500 in 1912 and $2,550 in 1913. The growth rate of GDP per capita from
1912 to 1913 is ________.
A) 0.02 percent
B) 2 percent
C) 5 percent
D) 50 percent
Answer: B
Difficulty: Easy
4
18) Decreases in the standard of living are associated with what sort of economic growth?
A) Slow economic growth
B) Sustained economic growth
C) Negative economic growth
D) Zero economic growth
Answer: C
Difficulty: Easy
19) The process by which a quantity grows at a constant proportion in every time period is called
________ growth.
A) linear
B) catch-up
C) exponential
D) logarithmic
Answer: C
Difficulty: Easy
Topic: Exponential Growth
20) The ________ nature of economic growth is one of the major reasons there are large differences in
GDP per capita across countries.
A) linear
B) exponential
C) logarithmic
D) quadratic
Answer: B
Difficulty: Medium
21) If the effects of the growth in a variable are approximately constant, then the growth is likely to be
________.
A) linear
B) negligible
C) exponential
D) logarithmic
Answer: C
Difficulty: Easy
5
22) Exponential growth implies that ________.
A) growth rates can only be positive
B) growth rates will alternate between positive and negative values in every consecutive time period
C) relatively large differences in growth rates will translate into small differences in the level of a quantity
after many years of growing
D) relatively small differences in growth rates will translate into large differences in the level of a
quantity after many years of growing
Answer: D
Difficulty: Medium
23) When current growth builds on past growth, growth is ________.

A) exponential
B) linear
C) logarithmic
D) negative
Answer: A
Difficulty: Easy
24) Which of the following statements is true?

A) To depict variables that have exponential growth, it is more convenient to use an axis with a linear
scale.
B) To depict variables that have exponential growth, it is more convenient to use an axis with a
proportional scale.
C) Exponential growth refers to growth by the same amount in every time period.
D) Linear growth refers to growth by the same proportion in every time period.
Answer: B
Difficulty: Easy
25) Refer to the scenario above. What will be the GDP per capita of Country A at the beginning of year 3?
A) $2,410.26
B) $2,546.16
C) $2,760.24
D) $2,800.00
Answer: B
Difficulty: Medium
6
26) Refer to the scenario above. What will be the GDP per capita of Country B at the beginning of year 3?
A) $2,450.65
B) $2,555.15
C) $2,646.00
D) $2,882.85
Answer: C
Difficulty: Medium
27) Refer to the scenario above. What will be the difference in the GDPs per capita of both countries at the
beginning of year 3?
A) $8.99
B) $30.39
C) $99.84
D) $339.69
Answer: C
Difficulty: Medium
28) Refer to the scenario above. Which of the following statements is true?
A) The gap between the GDP per capita of both countries will converge over time.
B) The gap between the GDP per capita of both countries will diverge over time.
C) The gap between the GDP per capita of both countries will remain the same over time.
D) In 30 years, the GDP per capita of Country A is likely to be higher than that of Country B.
Answer: B
Difficulty: Medium
29) Which characteristic of economic growth is responsible for the large differences in GDP per capita
across countries?
Answer: Economic growth is exponential in nature, and this is one of the major reasons for the large
differences in GDP per capita across countries. When an economy grows exponentially, new growth
builds on past growth and the effects of growth compound. Thus relatively modest differences in growth
rates translate into large differences in the level of GDP per capita after many years of growing.
Difficulty: Medium
7
The following figure shows graphs of various types of growth.
30) Refer to the figure above. The data in Graph A best represent ________.
A) linear growth
B) no growth
C) exponential growth
D) exponential decline
Answer: C
Difficulty: Easy
31) Refer to the figure above. The data in Graph B best represent ________.
A) linear growth
B) no growth
Answer: A
Difficulty: Easy
32) Refer to the figure above. The data in Graph C best represent ________.
A) linear growth
B) no growth
Answer: B
Difficulty: Easy
8
33) Refer to the figure above. The data in Graph D best represent ________.
A) linear growth
B) no growth
Answer: D
Difficulty: Easy
34) GDP per capita in Australia is $50,000. If Australian GDP per capita grows 6 percent per year for 2
years, which formula shows its GDP per capita after 2 years?
A) $50,000 × 1.06
B) $50,000 × 1.12
C) $50,000 × 1.06 × 1.06
D) $50,000 × 1.06 × 1.12
Answer: C
Difficulty: Easy
35) Initially Country A has a greater GDP per capita than Country B, but the growth rate in Country A is
only 1 percent, while it is 2 percent in Country B. If these growth rates continue forever, which of the
following is correct?
A) Country A will always have a higher GDP per capita than Country B.
B) Country B will not be able to sustain such a high growth rate.
C) The GDP per capita in Country B will eventually catch up to, but not overtake, that of Country A.
D) The GDP per capita in Country B will eventually overtake that of Country A.
Answer: D
Difficulty: Easy
Scenario: In 2000, world GDP per capita was $5,500. In 2010, world GDP per capita was $9,500.
36) Refer to the scenario above. If the world sustains this growth rate, approximately what will world
GDP per capita be in 2020?
A) $13,500
B) $15,000
C) $16,400
D) $19,000
Answer: C
Difficulty: Easy
9
37) Refer to the scenario above. If the world sustains this growth rate, approximately what will world
GDP per capita be in 2030?
A) $16,400
B) $17,500
C) $21,500
D) $28,300
Answer: D
Difficulty: Medium
Scenario: In 2010, world GDP per capita was $9,500. In the same year, the Economist magazine forecast
that in 2020, world GDP per capita would be $15,000
38) Refer to the scenario above. If the Economist magazine's forecast is correct, then the growth rate per
decade from 2010 to 2020 would be approximately ________.
A) 5 percent
B) 6 percent
C) 50 percent
D) 60 percent
Answer: D
Difficulty: Easy
39) Refer to the scenario above. The Economist magazine also forecasts that the rate of growth will remain
constant through 2030. If this is correct, then world GDP per capita in 2030 will be closest to ________.
A) $20,000
B) $22,000
C) $24,000
D) $26,000
Answer: C
Difficulty: Medium
Scenario: In 2000, the GDP per capita in Ohio is $35,000. Ohio's GDP per capita is predicted to increase 3
percent per year for the next 5 years.
40) Refer to the scenario above. If the prediction in the scenario is correct, by approximately what
percentage will Ohio's GDP per capita rise in 2005?
A) 15 percent
B) 16 percent
C) 17 percent
D) 18 percent
Answer: B
Difficulty: Medium
10
41) Refer to the scenario above. If the prediction in the scenario is correct, what will Ohio's GDP per
capita be in 2005 (to the nearest thousand)?
A) $39,000
B) $40,000
C) $41,000
D) $42,000
Answer: C
Difficulty: Medium
42) California's GDP per capita is $60,000, while Nevada's GDP per capita is $40,000. If both grow at 2
percent per year, how long will it take for the two states to have the same GDP per capita?
A) 25 years
B) 35 years
C) 50 years
D) They will never have the same GDP per capita
Answer: D
Difficulty: Medium
43) Suppose that a nation's GDP per capita grows at a constant 4 percent per year. You graph the nation's
GDP per capita on a graph with a linear time scale on the x-axis, and a linear GDP per capita scale on the
y-axis. What will the nation's GDP per capita look like on the graph?
A) A horizontal line
B) A straight upward-sloping line
C) A curve that is sloped upward and increasing in slope
D) A curve that is sloped upward and decreasing in slope
Answer: B
Difficulty: Easy
44) Suppose that a nation's GDP per capita grows at a constant 4 percent per year. You graph the nation's
GDP per capita on a graph with a linear time scale on the x-axis, and a proportional GDP per capita scale
on the y-axis. What will the nation's GDP per capita look like on the graph?
A) A horizontal line
B) A straight upward-sloping line
C) A curve that is sloped upward, and increasing in slope
D) A curve that is sloped upward, and decreasing in slope
Answer: C
Difficulty: Easy
11
45) Cross-country comparison of GDP per capita between 1960 and 2010 shows that countries such as
________ have grown at negative rates during this period.
A) Mexico and Brazil
B) Haiti and the Democratic Republic of Congo
C) India and China
D) South Korea and Singapore
Answer: B
Difficulty: Medium
Topic: Patterns of Growth
46) While countries like Botswana and Singapore have experienced rapid growth rates since 1960, the
growth of the Democratic Republic of the Congo is best described as ________.
A) steady
B) slow
C) negative
D) linear
Answer: C
Difficulty: Medium
47) The growth process whereby relatively poorer nations increase their income by taking advantage of
knowledge and technologies already invented in other, technologically more advanced countries is
known as ________ growth.
A) transfer
B) catch-up
C) trade-based
D) innovative
Answer: B
Difficulty: Easy
48) Catch-up growth is characterized by disparities in growth levels, magnified by the ________ nature of
economic growth.
A) disproportionate
B) exponential
C) homogenous
D) linear
Answer: B
Difficulty: Easy
12
49) Singapore had a GDP per capita of $395 in 1960. It then started taking advantage of knowledge and
technologies already invented in other technologically advanced countries. In 2013, its GDP per capita
had increased to $52,918. The growth in Singapore's average per capita GDP is considered to be ________
growth.
A) catch-up
B) sustained
C) instant
D) disguised
Answer: A
Difficulty: Medium
50) Sustained growth refers to a growth process in which ________.

A) GDP per capita grows at a positive and steady rate for long periods of time
B) GDP per capita grows at a rate of more than 20 percent per year for long periods of time
C) growth in GDP per capita is primarily attributed to public sector firms and enterprises
D) growth in GDP per capita is translated into an equal increase in welfare for all citizens in a country
Answer: A
Difficulty: Medium
51) The implied growth rate for a country between 1960 and 2010 was 6 percent. This implies that
________.
A) the country grew by at least 6 percent in any of the 50 years between 1960 to 2010 to reach the level of
GDP in 2010 starting at the 1960 level
B) the growth rate of GDP in the country was above 6 percent between 1960 and 2010
C) the country grew at an average rate of 6 percent per year between 1960 and 2010 to reach the 2010 level
of GDP starting at the 1960 level
D) the country grew at rates above 6 percent per year between 1960 and 2010 to reach the 2010 level of
GDP starting at the 1960 level
Answer: C
Difficulty: Easy
52) Country A's GDP per capita is 80 percent of Country B's GDP per capita. If both countries experience
growth of 5 percent, Country A's GDP per capita will now be what percentage of Country B's GDP per
capita?
A) 75 percent
B) 80 percent
C) 85 percent
D) 90 percent
Answer: B
Difficulty: Easy
13
53) The countries that have experienced fast growth in GDP per capita over the past 50 years are mostly
located where?
A) Central America
B) East Asia
C) West Africa
D) South America
Answer: B
Difficulty: Medium
54) "Catch-up growth" refers to a process where relatively poorer nations increase their incomes by
________.
A) working harder than more advanced nations
B) extracting more natural resources than more advanced nations
C) having higher birthrates than more advanced nations
D) using technologies from more advanced nations
Answer: D
Difficulty: Easy
55) Which of the following pairs of countries has used catch-up growth over the past few decades to
achieve incomes that are now comparable to that of the United States?
A) Singapore and South Korea
B) Mexico and Brazil
C) The United Kingdom and France
D) Kenya and Rwanda
Answer: A
Difficulty: Easy
56) U.S. GDP per capita has increased approximately 2 percent per year over an extended period. This is a
good example of what sort of growth?
A) Catch-up growth
B) Power growth
C) Linear growth
D) Sustained growth
Answer: D
Difficulty: Easy
14
57) China's GDP per capita is currently lower than that of Japan. If Japanese GDP per capita grows at 2
percent per year, how fast must Chinese GDP per capita grow to eventually catch up to Japanese GDP
per capita?
A) At least 5 percent per year
B) At least 3 percent per year
C) Any rate above 2 percent per year
D) Any positive rate
Answer: C
Difficulty: Easy
58) How does the concept of catch-up growth explain the diminishing income gap between developing
economies and developed economies?
Answer: Catch-up growth refers to the process whereby relatively poorer nations increase their incomes
by taking advantage of knowledge and technologies already invented in other, technologically more
advanced countries. Developing economies undergoing catch-up growth do so mostly by benefiting from
technologies that are already available in developed economies. In addition to using technology transfers,
if these economies increase their saving rates, efficiency units of labor, and efficiency of production, they
can catch up with the developed economies. Many economies have been doing so, and over time, this
process has caused the income gap between the developing economies and developed economies to
diminish.
Difficulty: Medium
15
59) The following table shows the GDP per capita of various countries for the years 1960 and 2010 in PPP-
adjusted 2005 dollars. The table also contains the implied growth rates, which show how much on
average each country needed to grow each year to reach the 2010 level of GDP per capita starting from
the 1960 level of GDP per capita. Use the table to answer the following questions.
a) During 1960-2010, which countries were able to reduce the gap between their GDP per capita and the
U.S. GDP per capita?
b) During 1960-2010, which countries failed to reduce the gap between their GDP per capita and the U.S.
GDP per capita?
c) Why have some countries reduced the gap between their incomes and that of the United States and
other countries failed to do so?
Answer:
a) From the data, it can be inferred that Singapore and China have reduced the gap between their GDP
per capita and U.S. GDP per capita over the given time period.
b) From the data, it can be inferred that Kenya, Haiti, and Ghana have failed to reduce the gap between
their GDP per capita and U.S. GDP per capita over the given time period.
c) Some countries have reduced the gap between their incomes and that of the United States while other
countries have failed to do because of the nature of economic growth. Economic growth is exponential in
nature. Thus, countries that have experienced a higher average growth rate than that of the United States
have caught up with the United States. In contrast, countries with an average annual growth rate that is
less than that of the United States have failed to catch up with the United States. Instead, the gap between
their incomes has increased. Thus, exponential growth is mainly responsible for the differences in GDP
per capita across countries; it is also the reason some countries have been able to catch up with the world
leaders in terms of GDP per capita and some have not.
Difficulty: Medium
16
60) The following table shows the GDP per capita since 1820 in selected countries (in PPP-adjusted 2005
dollars).
Average Average
Country 1820 1870 1920 1970 2010 growth (1820— growth (1920—
2010) 2010)
United
$1,873 $3,365 $7,641 $20,684 $41,961 1.65 percent 1.91 percent
States
United
$2,854 $4,390 $6,259 $14,817 $32,722 1.29 percent 1.85 percent
Kingdom
China $826 $729 $760 $1,071 $11,054 1.37 percent 3.02 percent
Mexico $863 $896 $2,509 $5,945 $10,619 1.33 percent 1.62 percent
a) Identify the countries that experienced sustained growth between 1820 and 2010.
b) Identify the countries that experienced sustained growth from 1920 to 2010.
c) Identify the countries that experienced catch-up growth from 1920 to 2010.
Answer:
a) Sustained growth refers to a process in which GDP per capita increases at a positive and steady rate for
long periods of time. From the given data, it can be inferred that only the United States, the United
Kingdom, and Mexico have experienced steady and positive growth rates since 1820 to 2010. Hence, these
are the three countries that have experienced sustained growth since 1820 to 2010. China has not
experienced sustained growth because the country's GDP per capita declined in 1870 compared to its
1820 level.
b) All four countries listed in the table have grown at steady and positive rates from 1920 to 2010. Thus,
they have experienced sustained growth during this period.
c) Catch-up growth refers to a process whereby relatively poorer nations increase their incomes by taking
advantage of knowledge and technologies already invented in other, technologically more advanced
countries. In this case, the most advanced country is the United States, as it has the highest GDP per
capita. The only country to have experienced average growth that is higher than that of the United States
from 1920 to 2010 is China. China has reduced the gap in GDP per capita between itself and the United
States; it is the only country listed in the table to have experienced catch-up growth from 1920 to 2010.
Difficulty: Hard
17
61) Consider two economies: Barylia and Lithasia. The GDP per capita in Lithasia is $6,000, while the
GDP per capita in Barylia is $12,000. Both countries grow exponentially at an annual rate of 10 percent.
How will their GDPs vary over the next year? Is there any limitation to comparing the absolute levels of
GDP per capita of both countries over the next years? If yes, what is a plausible solution?
Answer: The GDP per capita of Lithasia after 1 year will be $6,000 + $600 = $6,600.
The GDP per capita of Barylia after 1 year will be $12,000 + $1,200 = $13,200.
Initially, the gap between the GDP per capita of both countries was $12,000 − $6,000 = $6,000.
A year hence, the gap between the GDP per capita of both countries will be $13,200 − $6,600 = $6,600.
Hence, over 1 year, the gap between the GDP per capita of both countries will increase by $600.
The ratio of GDP per capita of Barylia to that of Lithasia after 1 year = $13,200/$6,600 = 2.
Hence, even after a year, the GDP per capita of Barylia will still be twice that of Lithasia.
This implies that the relative GDPs of both nations will remain stable although the absolute gap will
increase. Thus, comparing absolute levels of GDP per capita will not lead us to an accurate conclusion. In
the presence of exponential growth, even though relative GDPs remain stable, the absolute gaps in the
GDPs of both countries can increase. For this reason, a better statistic to be considered is the ratio of the
two countries' GDP per capita.
Difficulty: Hard
Topic: Letting the Data Speak: Levels versus Growth
7.2 How Does a Nation's Economy Grow?
1) Assuming all else equal, if the production technology available to a nation improves, its ________.
A) GDP decreases
B) stock of physical capital decreases
C) GDP increases
D) population increases
Answer: C
Difficulty: Easy
Topic: How Does a Nation's Economy Grow?
2) The value of all equipment and structures in an economy is referred to as its ________.
A) national income
B) physical capital stock
C) wealth
D) asset value
Answer: B
Difficulty: Easy
18
3) The process by which the stock of equipment and structures available to an economy is increased by
investment is referred to as ________.
A) investment growth
B) output expansion
C) physical capital accumulation
D) autonomous growth
Answer: C
Difficulty: Easy
4) In a closed economy, ________ equal to zero.

A) investment is
B) consumption is
C) net exports are
D) government spending is
Answer: C
Difficulty: Easy
Scenario: In a closed economy without a government, the consumption expenditure equals $5,000 and the
investment expenditure equals $2,000.
5) Refer to the scenario above. What is the national income of the economy?
A) $2,000
B) $5,000
C) $7,000
D) $10,000
Answer: C
Difficulty: Easy
6) Refer to the scenario above. If the population of the economy is 200, the per capita national income is
________.
A) $10
B) $17
C) $35
D) $50
Answer: C
Difficulty: Easy
19
7) In a closed economy without a government, income equals aggregate ________.
A) consumption
B) saving
C) saving plus aggregate investment
D) saving plus aggregate consumption
Answer: D
Difficulty: Easy
8) In a closed economy without a government, ________.

A) consumption equals savings
B) consumption equals investment
C) saving equals investment
D) saving equals net exports
Answer: C
Difficulty: Easy
9) From the perspective of individual households, income can only be consumed or saved, the latter of
which become ________ utilized by firms.
A) investment
B) capital depreciation
C) intellectual property
D) interest rates
Answer: A
Difficulty: Easy

A) A nation with a high saving rate will accumulate capital slowly.
B) A nation with a high saving rate will accumulate capital rapidly.
C) In a closed economy, government spending equals zero.
D) In a closed economy, aggregate consumption equals zero.
Answer: B
Difficulty: Easy
20
11) Consider two countries, Country A and Country B, that are alike in most respects. However, the
saving rates in the two countries differ. Country A's saving rate is greater than Country B's saving rate.
Which of the following statements is true?
A) The rate of physical capital accumulation will be the same in both economies.
B) Physical capital accumulation will occur faster in Country A than in Country B.
C) Physical capital accumulation will occur faster in Country B than in Country A.
D) The growth rate in Country B is likely to be higher than the growth rate in Country A in the long run.
Answer: B
Difficulty: Medium
12) Explain how saving equals investment in a closed capitalist economy.

Answer: The national income identity is given by Y = C + I + G + NX, where C is consumption
expenditure, I is investment expenditure, G is government spending, and NX is net exports. In a closed
capitalist economy, G = NX = 0; hence, Y = C + I. In other words, GDP is the sum of aggregate
consumption expenditure and investment. It is also true that all the income generated in a closed
economy without government spending will be either consumed or saved. Hence, Y = C + S. Since Y = C +
S, Y = C + I, implying that S = I.
Difficulty: Medium
The following table shows levels of consumption and investment in four countries.
Country Country Country Country

A B C D
Consumption 200 2,200 2,000 5,200
Investment 600 3,000 1,200 4,200
13) Refer to the table above. Which country has the highest savings rate?
A) Country A
B) Country B
C) Country C
D) Country D
Answer: A
Difficulty: Medium
14) Refer to the table above. Which country has the lowest consumption rate?
A) Country A
B) Country B
C) Country C
D) Country D
Answer: A
Difficulty: Medium
21
15) Refer to the table above. Which country has the lowest savings rate?
A) Country A
B) Country B
C) Country C
D) Country D
Answer: C
Difficulty: Medium
16) Refer to the table above. Which country has the highest consumption rate?
A) Country A
B) Country B
C) Country C
D) Country D
Answer: C
Difficulty: Medium
17) A new coal-fired power plant will increase aggregate production. Which element of the aggregate
production function Y = A × F(K, H) will this power plant increase?
A) A
B) F
C) K
D) H
Answer: C
Difficulty: Medium
18) The saving rate indicates ________.

A) the fraction of income that households save
B) the difference between household consumption and savings
C) the rate of return households earn on their savings
D) the difference between government revenue and government expenditure
Answer: A
Difficulty: Easy
Topic: Optimization: The Choice Between Saving and Consumption
19) The rates of return that households expect on their savings are determined by ________.
A) tax rates
B) interest rates
C) exchange rates
D) the level of government expenditure
Answer: B
Difficulty: Easy
22
A) Higher interest rates typically encourage more savings.
B) The savings of households are independent of tax rates.
C) Households that expect an increase in future earnings are likely to save more.
D) An increase in the consumption of households increases the savings of the households.
Answer: A
Difficulty: Easy

A) If households expect higher taxes in the future, they will increase their current saving rate.
B) If households expect higher taxes in the future, they will decrease their current saving rate.
C) The saving rate of households is dependent only on current consumption expenditure.
D) The saving rate of households is dependent only on planned future consumption expenditure.
Answer: A
Difficulty: Easy
22) The saving rate in an economy equals ________.

A) GDP minus aggregate consumption
B) GDP divided by aggregate saving
C) aggregate saving multiplied by GDP
D) aggregate saving divided by GDP
Answer: D
Difficulty: Easy
23) If the aggregate saving in an economy is $1,750 and the GDP of the economy is $55,000, then the
saving rate in the economy is ________.
A) 1.8 percent
B) 3.18 percent
C) 8.96 percent
D) 10 percent
Answer: B
Difficulty: Easy
23
24) Consider a closed economy without a government. If the GDP of the economy is $63,000 and the
consumption in the economy is $45,000, the saving rate in the economy is ________.
A) 16.86 percent
B) 24 percent
C) 28.57 percent
D) 35.75 percent
Answer: C
Difficulty: Medium
25) Consider a closed economy without a government. If the GDP of the economy is $25,000 and the
saving rate in the economy is 25 percent, the aggregate saving in the economy is ________.
A) $3,320
B) $6,250
C) $8,000
D) $8,650
Answer: B
Difficulty: Easy
26) Consider a closed economy without the government. If the saving rate in the economy is 15 percent
and the aggregate saving is $6,000, the GDP of the economy is ________.
A) $15,000
B) $27,000
C) $30,000
D) $40,000
Answer: D
Difficulty: Hard
27) Consider a closed economy without a government. If the saving rate in the economy is 20 percent and
the aggregate saving is $10,000, the aggregate consumption in the economy is ________.
A) $10,000
B) $37,000
C) $50,000
D) $45,000
Answer: C
Difficulty: Hard
24
28) Define saving rate. If the aggregate saving in an economy is $10,000 and the aggregate income in the
economy is $70,000, what is the saving rate in the economy?
Answer: The saving rate refers to the fraction of income that households save. It can be obtained by
dividing aggregate saving by aggregate income. In this case, the saving rate = 10,000/70,000 = 0.1428 =
14.28 percent.
Difficulty: Easy
29) Consider two economies with the same GDP per capita: Barylia and Lithasia. The saving rate in
Barylia is 20 percent, while the saving rate in Lithasia is 60 percent.
a) Which of these two countries is likely to accumulate physical capital faster?
b) The government in Barylia decides to provide incentive to its citizens to increase the saving rate further
to 80 percent as a means of improving standards of living. Will the increase in saving translate into
improvements in the standard of living?
Answer:
a) The amount of physical capital accumulation in an economy is equal to the physical capital stock of the
previous year minus depreciated capital plus the level of investment in an economy. Hence, as the level
of investment increases, the amount of physical capital accumulation increases.
The investment in an economy equals I = Saving rate × GDP per capita.
Therefore, it can be inferred that the higher the saving rate is in an economy, the higher the investment
will be in the economy. Hence, the higher the saving rate is in an economy, the higher the physical capital
accumulation will be. Lithasia is likely to accumulate capital faster compared to Barylia.
b) The total amount of income in an economy is either consumed or saved. The standard of living in any
country is dependent on consumption and not on saving. Hence, if the government encourages
households to save more, increase in investment and output may not translate into improvements in
living standards of the people in the country.
Difficulty: Medium
30) The saving rate in France is currently 6 percent. Which event would most likely decrease the current
saving rate?
A) The interest rate in France decreases.
B) Economists forecast slowing growth in France next year.
C) The income tax rate in France is expected to increase next year.
D) French people anticipate strong future growth in France's economy.
Answer: D
Difficulty: Easy
25
31) Michael currently saves 5 percent of his income. Which of the following would likely lead Michael to
save more of his income than he currently does?
A) If the interest rate Michael could earn on his savings fell
B) If Michael learned he had just earned a promotion and a large increase in salary
C) If Michael anticipated that the tax rate on income in the future would fall
D) If Michael learned that his wife would have to stop working a year from now
Answer: D
Difficulty: Medium
32) In New Zealand, Total saving = $17 billion, while GDP = $150 billion. What is the New Zealand saving
rate, to the nearest percentage point?
A) 10 percent
B) 11 percent
C) 12 percent
D) 13 percent
Answer: B
Difficulty: Easy
33) In Australia, the saving rate is 15 percent, while GDP is $1.34 trillion. Total saving in Australia is
closest to ________.
A) $200 billion
B) $220 billion
C) $240 billion
D) $260 billion
Answer: A
Difficulty: Easy
34) In Fiji, total saving is $560 million, while GDP is $4.4 billion. In Papua New Guinea, total saving is
$2.4 billion, while GDP is $16.9 billion. Which of the following is true?
A) Fiji's saving rate is at least one percentage point higher than that of Papua New Guinea.
B) Papua New Guinea's saving rate is at least one percentage point higher than that of Fiji.
C) Fiji and Papua New Guinea have exactly the same saving rate.
D) Fiji and Papua New Guinea have saving rates that are less than one percentage point apart, but are not
exactly equal.
Answer: B
Difficulty: Medium
26
35) Which of the following would constitute empirical evidence that higher interest rates encourage more
saving?
A) A mathematical model in which there was a positive relationship between the interest rate and the
saving rate
B) A mathematical model in which there was a negative relationship between the interest rate and the
saving rate
C) A cross-country study showing a positive relationship between the interest rate and the saving rate
D) A cross-country study showing a negative relationship between the interest rate and the saving rate
Answer: C
Difficulty: Medium
36) Which of the following factors of production is least likely to exhibit diminishing marginal product?
A) Land
B) Labor
C) Physical capital
D) Technology
Answer: D
Difficulty: Easy
Topic: What Brings Sustained Growth?
37) Continuous increase in investment in ________ is most likely to cause sustained growth.
A) land
B) labor
C) physical capital
D) technology
Answer: D
Difficulty: Easy
38) Suppose the working-age population of a country doubles because of immigration. The country,
however, neglects investment in research and development (R&D), and hence, its level of technology
remains stagnant. Which of the following statements will be true of this economy?
A) The economy cannot achieve sustained growth.
B) The economy will experience steady economic growth.
C) The economy's output will rise at an increasing rate over time.
D) The saving rate will remain stagnant over the years.
Answer: A
Difficulty: Medium
27
39) Why is investing in technology as a means to sustained growth a better option than investing in labor
or capital?
Answer: The main reason investing in technology as a means to sustained growth is a better option than
investing in labor or capital is that investing in labor and capital is subject to diminishing marginal
product. This implies that the additional output generated by investing in an extra unit of capital or labor
diminishes with increasing capital and labor. Hence, growth cannot be sustained by investing only in
labor or capital. In contrast, investment in technology builds on previous stocks of technology. Hence,
technological growth is exponential in nature.
Difficulty: Medium
40) Which of labor and capital experiences diminishing marginal product?

A) Neither labor nor capital
B) Labor, but not capital
C) Capital, but not labor
D) Both labor and capital
Answer: D
Difficulty: Easy
41) Sustained growth is best achieved through which of the following?

A) Physical capital accumulation
B) Population increases
C) Increases in the quality and amount of education
D) Technological progress
Answer: D
Difficulty: Easy
42) Which of the following national priorities would be most likely to result in sustained growth?
A) Building new factories and infrastructure
B) Encouraging a high birthrate
C) Increasing the age at which students may leave school
D) Encouraging new knowledge creation
Answer: D
Difficulty: Medium
28
43) Why is physical capital accumulation alone unlikely to result in sustained growth?
A) Because of the diminishing marginal product of physical capital.
B) Because of the diminishing marginal product of labor.
C) Because of the eventual need to replace existing physical capital.
D) Because high levels of physical capital will tempt other countries to steal that capital.
Answer: A
Difficulty: Easy

A) An extremely high saving rate can be counterproductive for an economy.
B) The greater the saving rate in an economy, the slower the rate of physical capital accumulation.
C) For positive growth, the consumption in an economy should always be less than the saving.
D) The greater the consumption expenditure in an economy, the faster the physical capital accumulation.
Answer: A
Difficulty: Easy
Topic: Choice and Consequence: Is Increasing the Saving Rate Always a Good Idea?

A) Growth in technology is linear in nature.
B) Growth in technology is exponential in nature.
C) Growth in labor productivity is exponential in nature.
D) Growth in land productivity is exponential in nature.
Answer: B
Difficulty: Easy
Topic: Knowledge, Technological Change, and Growth
46) Suppose the growth in GDP per hour worked resulting from physical capital in an economy is 1
percent and the growth resulting from human capital is 2 percent. If the annual growth rate of GDP per
hour worked is 5 percent, the growth resulting from technology equals ________.
A) 1 percent
B) 2 percent
C) 3 percent
D) 4 percent
Answer: B
Difficulty: Medium
29
47) The price of making a telephone call has fallen dramatically over the past 100 years. This is best
explained by improvements in what?
A) Human capital
B) Education
C) Physical capital
D) Technology
Answer: D
Difficulty: Easy
48) The introduction of the assembly line allowed GDP per hour worked to increase substantially. This is
an example of an improvement in what?
A) Human capital
B) Physical capital
C) Technology
D) Education
Answer: C
Difficulty: Medium
49) Consider two countries: Country A and Country B. Assume that both countries are identical until the
year 2000. At the beginning of 2000, both countries decide to change their strategy for economic growth.
Country A plans to encourage immigration and increase human capital in the economy to achieve
sustained growth, while Country B decides to make large investments in R&D to achieve sustained
growth. Which of the two countries is more likely to experience sustained growth and why?
Answer: Among the two countries, country B is more likely to experience sustained growth. This is
because its approach to growth involves improving production technology, while country A's approach
involves increasing the total efficiency units of labor. Holding all other factors of production constant, if a
country increases its workforce, every additional worker will increase GDP by less and less because of
diminishing marginal product of total efficiency units of labor. In contrast, investment in R&D is likely to
increase the level of technology available in country B. Technology is a factor of production that exhibits
exponential growth. This is because new technology builds on existing technology. Since the growth in
technology is exponential, it is the only factor of production where improvements do not necessarily run
into diminishing marginal product. For this reason, country B, which is investing in technology, is more
likely to experience sustained growth.
Difficulty: Hard
50) ________ experiences a growth pattern similar to that of an economy.

A) Savings rate
B) Consumption rate
C) Efficiency units of labor
D) Technology
Answer: D
Difficulty: Easy
30
51) The price of a 3-pound chicken has fallen about 20 percent per decade over the past 70 years. This is
an example of the ________.
A) linear effect of technological change
B) exponential effect of technological change
C) linear effect of physical capital accumulation
D) exponential effect of physical capital accumulation
Answer: B
Difficulty: Medium
52) North Dakota's GDP per capita is $65,000, while South Dakota's GDP per capita is $48,000. Advances
in technology increase North Dakota's GDP per capita over the following decade to $78,000. If South
Dakota benefits in the same way from those technologies, what will South Dakota's GDP per capita be
after a decade?
A) $57,600
B) $61,000
C) $65,000
D) $78,000
Answer: A
Difficulty: Medium
53) This is the process that enables the economy to achieve a higher level of GDP for given levels of its
factors of production, physical capital stock, and total efficiency units of labor.
A) technological change
B) output multiplication
C) economic facilitation
D) offshoring
Answer: A
Difficulty: Easy
54) For the U.S. economy, on average, the growth resulting from technology is ________.
A) greater than the growth resulting from human capital
B) smaller than the growth resulting from physical capital
C) equal to the growth resulting from human capital
D) equal to the growth resulting from physical capital
Answer: A
Difficulty: Easy
Topic: Evidence-Based Economics: Why Are You So Much More Prosperous Than Your Great-Great-Grandparents
Were?
31
55) For the U.S. economy, on average, the growth resulting from ________.
A) technology is smaller than the growth resulting from human capital
B) technology is smaller than the growth resulting from physical capital
C) physical capital is greater than the growth resulting from human capital
D) physical capital is smaller than the growth resulting from human capital
Answer: C
Difficulty: Easy
Were?
56) Which of the following is true of the growth in the U.S. economy from 1950 to 2007?
A) Growth resulting from technology > growth resulting from human capital > growth resulting from
physical capital
B) Growth resulting from technology > growth resulting from physical capital > growth resulting from
human capital
C) Growth resulting from physical capital > growth resulting from technology > growth resulting from
human capital
D) Growth resulting from human capital > growth resulting from technology > growth resulting from
physical capital
Answer: B
Difficulty: Medium
Were?
57) Most of the growth in GDP per hour worked in the United States over the past several decades can be
attributed to growth resulting from ________.
A) physical capital
B) human capital
C) government policies
D) technology
Answer: D
Difficulty: Easy
Were?
58) During which period was the growth of U.S. GDP per hour worked the greatest?
A) The 1950s and 1960s
B) The 1970s and 1980s
C) The 1990s and 2000s
D) Growth was essentially equal during each of these periods
Answer: A
Difficulty: Medium
Were?
32
59) How much of the growth in U.S. GDP per hour worked over the past 60 years can be attributed to
technological progress?
A) Almost all of it
B) At least half, but not all
C) Less than half, but not none
D) Essentially none of it
Answer: B
Difficulty: Easy
Were?
7.3 The History of Growth and Technology
1) Which of the following statements is true of the U.S. economy before 1800?
A) There were no major achievements in arts in the U.S. economy.
B) There were no major achievements in science and technology in the U.S. economy.
C) Sustained economic growth was rare or absent in the U.S. economy.
D) The U.S. economy was growing at an average rate of more than 6 percent per year.
Answer: C
Difficulty: Easy
Topic: Growth Before Modern Times
2) The minimum level of income per person that is generally necessary for the individual to obtain
enough calories, shelter, and clothing to survive is referred to as the ________.
A) safety level of income
B) minimum wage rate
C) survival wage rate
D) subsistence level of income
Answer: D
Difficulty: Easy
3) Which of the following statements is true of economic growth and GDP across the world before 1800?
A) There was a lack of sustained growth because the pace of technological change was slow.
B) The income per capita in all countries throughout the world was less than $500 per capita.
C) The income per capita in all countries throughout the world was more than $1,000 per capita.
D) There was sustained growth because whatever improvements in GDP were realized were invested in
capital equipment.
Answer: A
Difficulty: Easy
33
4) Which of the following statements is true of world GDP before 1800?
A) Most of the countries were growing at a rate of more than 6 percent per year.
B) The GDP per capita in all nations across the world was less than $500.
C) The entire world population was living above the subsistence level of income.
D) An increase in GDP resulted in an increase in consumption but not investment.
Answer: D
Difficulty: Medium
5) What were the major reasons for the lack of sustained growth before modern times?
Answer: The two main reasons for the lack of sustained growth before modern times are as follows:
i) The pace of technological change before 1800 was slow and almost stagnant compared to what came
thereafter.
ii) Whatever improvements in income or GDP that were realized went to feeding an increasing
population rather than attempting to increase the GDP per capita.
Difficulty: Medium
6) The subsistence level of income is the minimum level of income per person that is generally necessary
to ________.
A) obtain enough calories, shelter, and clothing to survive
B) save for retirement
C) contribute meaningfully to the advancement of society
D) obtain a middle-class lifestyle in whatever country they live in
Answer: A
Difficulty: Easy
7) Why was there essentially no sustained growth before modern times?

A) Because frequent world wars made it impossible for growth to take hold
B) Because government policies prevented growth from taking place
C) Because there was no widespread public education
D) Because the pace of technological change was very slow
Answer: D
Difficulty: Easy
8) Fertility refers to ________.

A) the average period that an individual may be expected to live
B) the ability of an individual to read or write in at least one language
C) the ratio of deaths in an area to the population of the area
D) the number of children per adult or per woman of childbearing age
Answer: D
Difficulty: Easy
Topic: Malthusian Limits to Growth
34
9) Which of the following statements is true of Malthus's theory?
A) Malthus suggested that income levels will grow exponentially in the long run.
B) Malthus suggested that income levels will remain close to the subsistence level in the long run.
C) Malthus suggested that the fertility of the population will remain constant over time.
D) Malthus suggested that the life expectancy of the population will remain constant over time.
Answer: B
Difficulty: Easy
10) According to Malthus, when the standard of living in any economy is above subsistence, ________.
A) couples tend to have more children
B) couples tend to have fewer children
C) consumption is more than saving
D) saving is more than consumption
Answer: A
Difficulty: Easy
11) For a given level of GDP, a decrease in the size of the population will cause ________.
A) life expectancy to increase
B) life expectancy to decrease
C) GDP per capita to increase
D) GDP per capita to decrease
Answer: C
Difficulty: Easy
12) Which of the following correctly identifies a Malthusian cycle?

A) An increase in GDP will increase GDP per capita above subsistence, which will cause a decrease in the
size of the population, which will reduce pressure on resources and further increase GDP per capita.
B) An increase in GDP will increase GDP per capita above subsistence, which will cause an increase in the
size of the population, which will increase pressure on resources and that will further increase GDP per
capita.
C) An increase in GDP will increase GDP per capita above subsistence, which will cause an increase in
the size of the population, which will increase pressure on resources and eventually reduce GDP per
capita.
D) A decrease in GDP will decrease GDP per capita below subsistence, which will cause an increase in
the size of the population, which will increase pressure on resources and eventually reduce GDP per
capita.
Answer: C
Difficulty: Medium
35
13) Rapid population growth in Malthus's theory is constrained through ________.
A) higher fertility and mortality
B) reduced fertility and mortality
C) higher fertility and reduced mortality
D) reduced fertility and higher mortality
Answer: D
Difficulty: Medium
14) The term "demographic transition" refers to the ________ in fertility and number of children per
family that many societies undergo as they transition ________.
A) increase; from industry to agriculture
B) increase; from agriculture to industry
C) decrease; from agriculture to industry
D) decrease; from industry to agriculture
Answer: C
Difficulty: Easy
15) Which of the following statements identifies a correct reason for demographic transition?
A) The dependence on child labor is negligible in urban families compared to rural families.
B) The increase in the migration of labor from urban to rural areas reduces fertility.
C) The cost of rearing children is lower for urban families compared to rural families.
D) The transition from a rural economy to an urban economy reduces income below the subsistence level,
reducing fertility and the size of families.
Answer: A
Difficulty: Medium

A) After the demographic transition in the nineteenth century, there were recurrent Malthusian cycles.
B) Until the demographic transition in the nineteenth century, there were recurrent Malthusian cycles.
C) The demographic transition of the nineteenth century led to an increase in fertility across the Western
world.
D) The demographic transition of the nineteenth century led to a decrease in life expectancy across the
Western world.
Answer: B
Difficulty: Medium
36
17) Define subsistence level. What happens if the income in an economy exceeds the subsistence level
according to the Malthusian cycle?
Answer: The subsistence level is the minimum level of income per person that is generally necessary for
the individual to obtain enough calories, clothing, and shelter to survive. If the income in an economy
exceeds the subsistence level, the fertility in the economy increases, which in turn increases the size of the
population of the economy.
Difficulty: Medium
18) Describe the Malthusian Cycle.

Answer: The Malthusian cycle refers to the pre-industrial pattern in which increases in aggregate
income lead to an expanding population, which in turn reduces income per capita and puts a downward
pressure on population. The cycle starts with an increase in GDP above the subsistence level, which in
turn fuels population growth, increasing the pressure on existing resources and reducing GDP per capita.
Difficulty: Medium
19) What is meant by the term demographic transition? How is it responsible for modern growth?
Answer: Demographic transition refers to the decline in fertility and number of children per family that
many societies undergo as they transition from agriculture to industry. Demographic transition is a
central ingredient to modern growth, because it enabled the economies that experienced reduced fertility
to break away from the Malthusian cycle of sustained low GDP per capita.
Difficulty: Medium
20) As societies moved from rural living to living in cities, human fertility decreased. Why?
A) The polluted environments of cities made it harder to raise children to maturity.
B) Children were more expensive to raise in cities, and child labor was less beneficial.
C) In cities, there was too little food to ensure that children would survive to adulthood.
D) Children working in the newly invented factories of the Industrial Revolution tended to have shorter
lifespans.
Answer: B
Difficulty: Medium
21) Which statement about the Malthusian model is correct?

A) The Malthusian model applies today only in third-world nations.
B) The Malthusian model was a good representation of the world before 1800.
C) The Malthusian model applies today only in developed nations.
D) The Malthusian model was a poor representation of the world before 1800.
Answer: B
Difficulty: Easy
37
Scenario: In the fictional nation of Gallifrey, the subsistence level of income is $1,000 per year. Currently 3
million people live in Gallifrey, and GDP in Gallifrey is $2 billion.
22) Refer to the scenario above. What does the Malthusian model suggest will happen in Gallifrey?
A) The subsistence level of income in Gallifrey will rise.
B) The subsistence level of income in Gallifrey will fall.
C) The population in Gallifrey will rise.
D) The population in Gallifrey will fall.
Answer: D
Difficulty: Medium
23) Refer to the scenario above. How does the average level of income in Gallifrey compare to the
subsistence level?
A) Citizens of Gallifrey currently have incomes above subsistence, on average.
B) Citizens of Gallifrey currently have incomes equal to subsistence, on average.
C) Citizens of Gallifrey currently have incomes below subsistence, on average.
D) It is impossible to answer this question without additional information.
Answer: C
Difficulty: Easy
24) Which of the following identifies the correct reasons for sustained growth in the Western world after
the nineteenth century?
A) Demographic transition and the American Civil War
B) Demographic transition and the Industrial Revolution
C) The agricultural revolution and the Industrial Revolution
D) The American Civil War and the Industrial Revolution
Answer: B
Difficulty: Easy
Topic: The Industrial Revolution
25) Around the end of the eighteenth century in Britain, innovations in production resulted in greatly
increased output. This period is known as the ________.
A) Malthusian cycle
B) Scottish Enlightenment
C) demographic transition
D) Industrial Revolution
Answer: D
Difficulty: Easy
38
26) The ________ can be described as the arrival of new machines and methods of production in Britain,
starting in textile manufacturing and thereafter spreading into other sectors.
A) Colonial Period
B) Industrial Revolution
C) Urban Migration
D) Great Importation
Answer: B
Difficulty: Easy
27) Which of the following events opened the way for the rapid and steady technological changes that
underpinned modern economic growth?
A) The American Civil War
B) The Industrial Revolution
C) The agricultural revolution
D) Demographic transition in the Western world
Answer: B
Difficulty: Easy
28) Which of the following statements is true of the Industrial Revolution?

A) It was a gradual process.
B) It was a period of rapid disruption.
C) It started in the United States.
D) It started in the capital goods industry.
Answer: A
Difficulty: Easy
29) What is the Industrial Revolution? How did it contribute to modern economic growth?
Answer: The term "Industrial Revolution" is used to describe the series of innovation and their
implementation in the production process that began at the end of the eighteenth century in Britain. The
Revolution contributed to modern economic growth by opening the way for more steady and rapid
technological changes. It started a wave of industrialization that spread to many other countries around
the world.
Difficulty: Medium
39
30) Which group of industries were first affected by the Industrial Revolution?
A) Farming and fisheries
B) Mining and forestry
C) Manufacturing
D) Banking and financial services
Answer: C
Difficulty: Easy
31) Approximately how long ago did the Industrial Revolution occur?
A) 100 years ago
B) 200 years ago
C) 300 years ago
D) 400 years ago
Answer: B
Difficulty: Easy
32) Approximately when did the Industrial Revolution begin?

A) The end of the sixteenth century
B) The end of the seventeenth century
C) The end of the eighteenth century
D) The end of the nineteenth century
Answer: C
Difficulty: Easy
33) Activities that firms, universities, and governments undertake to increase their knowledge base are
referred to as ________.
A) primary activities
B) secondary activities
C) tertiary activities
D) research and development
Answer: D
Difficulty: Easy
Topic: Growth and Technology Since the Industrial Revolution
40
A) Countries with lower investment in research and development are likely to have higher standards of
living.
B) Countries with higher investment in research and development are likely to have higher standards of
living.
C) The Industrial Revolution started in the United States and spread to other parts of the world.
D) The Industrial Revolution started in South America and spread to other parts of the world.
Answer: B
Difficulty: Easy
35) In the United States, ________ percent of its GDP is spent on R&D every year.
A) 55.2
B) 2.79
C) less than 0.5
D) 14.3
Answer: B
Difficulty: Medium
7.4 Growth, Inequality, and Poverty
1) Which of the following statements is true of inequality in the U.S. economy?

A) Inequality had increased throughout the twentieth century.
B) Inequality had decreased throughout the twentieth century.
C) Inequality is now lower than what it was in 1950.
D) Inequality is now higher than what it was in 1950.
Answer: D
Difficulty: Easy
Topic: Letting the Data Speak: Income Inequality in the United States
2) The World Bank measure of absolute poverty, equivalent to about ________ per day, is a condition that
leads to serious economic, health, and social problems.
A) $5.85
B) $0.15
C) $6.20
D) $1.90
Answer: D
Difficulty: Easy
41
3) Income inequality in the United States was not constant throughout the twentieth century. When was it
lowest?
A) From the 1940s to the 1970s
B) In the 1920s and 1930s
C) From the 1980s onward
D) From the 1900s to the 1930s
Answer: A
Difficulty: Easy
4) By the end of the twentieth century, the share of U.S. income received by the top 10 percent of earners
was about ________.
A) 90 percent
B) 50 percent
C) 30 percent
D) 25 percent
Answer: B
Difficulty: Easy
5) Over the past 30 years, what has happened to the fraction of U.S. income received by the top 10 percent
of income earners?
A) It has increased.
B) It has decreased.
C) It has remained essentially constant.
D) It decreased, then returned to its original level.
Answer: A
Difficulty: Easy
6) The top 10 percent of income earners in the United States receive a large fraction of U.S. aggregate
income. How does this fraction compare today with the time of the Great Depression?
A) It is much greater today.
B) It is much smaller today.
C) It is about the same today as during the Great Depression.
D) Nobody knows, because records from the Great Depression do not exist.
Answer: C
Difficulty: Medium
42
A) The GDP per capita in most of the Western world has almost been constant since the beginning of the
twentieth century.
B) The GDP per capita of a nation at a particular point of time is not the same as the income of all
individuals in that nation.
C) GDP per capita is a useful tool to study the disparities in the standards of living in a country.
D) GDP per capita decreases with a decrease in population and increases with an increase in population,
GDP remaining unchanged.
Answer: B
Difficulty: Medium
Topic: Growth and Inequality
8) Which of the following is a problem associated with extreme levels of poverty?

A) High literacy
B) Low fertility
C) High life expectancy
D) High infant mortality
Answer: D
Difficulty: Medium
9) Suppose we know that a nation has experienced sustained growth. What does this mean about the
standard of living for the poorest members of that nation?
A) Their standard of living must have risen.
B) Their standard of living must have at least stayed constant.
C) Their standard of living must have fallen.
D) None of the above statements are correct.
Answer: D
Difficulty: Medium
10) Consider two countries. In the first country, there are 1,000 individuals; among them, 500 earn $20,000
per month and the remaining 500 earn $400 per month. In the second country, there are 1,000 people;
among them, 500 earn $12,000 per month and the remaining 500 people earn $600 per month. Which of
the two countries has more inequality and which country is the poorer of the two?
Answer: The per capita income in the first country is equal to (500 × 20,000 + 500 × 400)/1,000 = $10,200.
The per capita income in the second country is equal to (500 × 12,000 + 500 × 600)/1,000 = $6,300. From the
per capita income figures, we can conclude that the second country is poorer than the first country. The
ratio of rich-to-poor incomes in the first country is 10,000,000/20,000 = 50. The same ratio in the second
country is 6,000,000/30,000 = 20. Therefore the ratio of rich-to-poor incomes is much higher in the first
country. Thus, inequality is greater in the first country.
Difficulty: Medium
Topic: Choice and Consequence: Inequality versus Poverty
43
11) In which of the following countries would an economist describe income inequality as being greatest?
A) Half of the country's citizens earn $50,000 per year, and half earn $10,000 per year.
B) Half of the country's citizens earn $30,000 per year, and half earn $3,000 per year.
C) Half of the country's citizens earn $10,000 per year, and half earn $3,000 per year.
D) Half of the country's citizens earn $100,000 per year, and half earn $50,000 per year.
Answer: B
Difficulty: Medium
Topic: Choice and Consequence: Inequality versus Poverty
12) On an average, growth in per capita income is associated with a ________.

A) fall in poverty
B) rise in poverty
C) fall in inequality
D) rise in inequality
Answer: A
Difficulty: Easy
Topic: Growth and Poverty

A) Economic growth is the direct cause of declining poverty.
B) Economic growth is the direct cause of declining inequality.
C) Growth in unemployment is the direct cause of declining poverty.
D) There are some countries for which growth and poverty have both increased.
Answer: D
Difficulty: Easy

A) Economic growth always reduces poverty.
B) Economic growth always reduces inequality.
C) Economic growth is ineffective in reducing both poverty and inequality.
D) Economic growth can reduce poverty only if it is not associated with a significant rise in inequality.
Answer: D
Difficulty: Medium
15) Suppose we graphed the change in the poverty rate against the average growth rate of GDP per capita
for each of the 50 U.S. states over the past century. What would we expect to find?
A) A strong positive relationship
B) A weak positive relationship
C) A weak negative relationship
D) A strong negative relationship
Answer: C
Difficulty: Hard
44
16) Country A has experienced a greater average growth rate in GDP per capita than has Country B.
Based only on this, what would you predict about how the poverty rates changed in the two countries?
A) More than likely, the poverty rate in Country A has decreased faster than that of Country B.
B) Perhaps the poverty rate in Country A has decreased faster than that of Country B.
C) More than likely, the poverty rate in Country B has decreased faster than that of Country A.
D) Perhaps the poverty rate in Country B has decreased faster than that of Country A.
Answer: B
Difficulty: Hard
17) Over the past couple of decades, which have been the most common directions of change in the
poverty rate and GDP per capita across the world's nations?
A) Most nations have increased their poverty rate and their GDP per capita.
B) Most nations have decreased their poverty rate and their GDP per capita.
C) Most nations have increased their poverty rate and decreased their GDP per capita.
D) Most nations have decreased their poverty rate and increased their GDP per capita.
Answer: D
Difficulty: Medium
18) Over the past couple of decades, Brazil has (1) decreased its poverty rate, and (2) experienced positive
growth in GDP per capita. How does this compare to the majority of nations over this time period?
A) Both (1) and (2) are typical of the majority of nations over this period.
B) Neither (1) nor (2) are typical of the majority of nations over this period.
C) Only (1) is typical of the majority of nations over this period.
D) Only (2) is typical of the majority of nations over this period.
Answer: A
Difficulty: Medium
19) The second half of the twentieth century has seen substantial increases in international trade. What
effect has this had on worldwide poverty?
A) Poverty has decreased in most nations, at similar rates.
B) Poverty has increased in most nations at similar rates.
C) Poverty has decreased in most nations, particularly the poorer ones.
D) Poverty has decreased in most nations, particularly the richer ones.
Answer: C
Difficulty: Medium
Topic: How Can We Reduce Poverty?
45
20) Widespread mobile phone use has helped to reduce poverty in many poor nations. What is the best
explanation for this?
A) People are now able to call for help more easily when they are victims of crime.
B) People can access markets and services that they had no access to previously.
C) People can write apps for phones and sell them, allowing them to earn their way out of poverty.
D) People have more access to knowledge, allowing them to gain information and education like never
before.
Answer: B
Difficulty: Medium
21) Improvements in knowledge and technology in rich nations (such as the United States, Japan, and
Germany) have helped reduce poverty. Which nations' people have benefited from this?
A) Mostly the rich nations
B) Mostly the poor nations
C) Both rich and poor nations
D) Neither rich nor poor nations
Answer: C
Difficulty: Easy
22) Clara says that international trade can reduce poverty in developing nations by opening up new
markets for them to trade in. Bella says that international trade can reduce poverty in developing nations
by allowing the transfer of technology to those nations. Who is correct?
A) Clara
B) Bella
C) Neither Clara nor Bella
D) Both Clara and Bella
Answer: D
Difficulty: Easy
23) ________ imposed by wealthy nations is one way to increase gains in international trade for poorer
nations.
A) Increasing environmental standards
B) Increasing labor standards
C) Reducing tariffs
D) Increasing tariffs
Answer: C
Difficulty: Easy
46
24) Cross-country interactions produced by international trade can facilitate the transfer of ________.
A) exponential growth
B) income inequality
C) poverty
D) technology
Answer: D
Difficulty: Easy
25) How can technology developed in a wealthy country be used to increase the standard of living in
poorer countries?
Answer: As in the example of the wireline telephone industry, innovations developed in one country
can supplant dominant technologies in poorer countries that are maintained by state control or private
monopoly. In replacing more expensive technologies, productivity is increased at a lower cost, raising the
standard of living.
Difficulty: Medium
Appendix: The Solow Growth Model
1) The Solow growth model is a tool that is used for studying ________.
A) how net exports are determined
B) how aggregate demand is determined
C) how aggregate supply is determined
D) how aggregate income is determined
Answer: D
Difficulty: Medium
Topic: The Solow Growth Model
2) The aggregate production function used in the Solow model expresses GDP as a function of ________.
A) physical capital and level of technology only
B) physical capital and total efficiency units of labor only
C) level of technology and total efficiency units of labor only
D) physical capital, level of technology, and total efficiency units of labor
Answer: D
Difficulty: Medium
Topic: The Three Building Blocks of the Solow Model
47
3) ________ refers to the "wear and tear" that an equipment or structure goes through, eventually making
it obsolete.
A) Depreciation
B) Capital tear
C) Creative destruction
D) Intertemporal loss
Answer: A
Difficulty: Easy
4) Which of the following equations captures the aggregate physical capital stock of an economy in the
current year, Kcurrent year?
A) Kcurrent year = (1 + Depreciation rate) × Klast year + I
B) Kcurrent year = (1 − Depreciation rate) × Klast year + I
C) Kcurrent year = (1 − Depreciation rate) × Klast year × I
D) Kcurrent year = (1 − Depreciation rate) × Klast year − I
Answer: B
Difficulty: Medium
Scenario: The depreciation rate of physical capital in an economy is 10 percent. The investment on
physical capital in the current year is $500.
5) Refer to the scenario above. What is the current value of the physical capital stock in the economy if the
physical capital stock in the last year was worth $600?
A) $900
B) $1,000
C) $1,040
D) $1,200
Answer: C
Difficulty: Medium
6) Refer to the scenario above. What is the current value of the physical capital stock in the economy if the
physical capital stock in the last year was $1,000?
A) $1,200
B) $1,400
C) $1,600
D) $1,800
Answer: B
Difficulty: Medium
48
A) The amount of physical capital accumulation increases with a decrease in the depreciation rate of
capital.
B) The amount of physical capital accumulation increases with an increase in the depreciation rate of
capital.
C) The depreciation rate of physical capital increases with an increase in the investment in capital.
D) The depreciation rate of physical capital increases with a decrease in the investment in capital.
Answer: A
Difficulty: Medium

A) Physical capital accumulation will be high in the current year if the physical capital stock of the
previous year was high.
B) Physical capital accumulation will be high if the physical capital stock of the previous year was low.
C) The rate of depreciation will be low in the current year if the investment on physical capital the
previous year was high.
D) The rate of depreciation will be high in the current year if the investment on physical capital the
previous year was low.
Answer: A
Difficulty: Medium
9) If s denotes the saving rate, I denotes aggregate investment, and Y denotes GDP, then which of the
following equations is correct?
A) Y = s × I
B) I = s × Y
C) I = s/Y
D) I = Y/s
Answer: B
Difficulty: Easy
10) If the saving rate in an economy is 30 percent and the GDP of the economy is $1,000, then the level of
investment in the economy will be ________.
A) $150
B) $300
C) $330
D) $600
Answer: B
Difficulty: Easy
49
11) If the saving rate in an economy is 30 percent and the level of investment in the economy is $400, the
GDP of the economy must be ________.
A) $1,111.22
B) $1,333.33
C) $1,750.50
D) $1,900.25
Answer: B
Difficulty: Medium
12) If the level of investment in an economy is $4,000 and the GDP of the economy is $10,000, the saving
rate in the economy must be ________.
A) 20 percent
B) 30 percent
C) 40 percent
D) 44 percent
Answer: C
Difficulty: Medium
13) What are the factors that affect GDP according to the aggregate production function used by Solow?
Answer: The aggregate production function used by Solow expresses GDP as a function of three factors
of production:
i) physical capital
ii) total efficiency units of labor
iii) level of technology
Difficulty: Easy
14) What is the physical capital accumulation equation used by Solow?

Answer: According to Solow, the physical capital in the current year (Kcurrent year) is equal to the
physical capital of last year (Klast year) less the depreciated physical capital (Kdepreciated) plus the level
of investment (I). This implies:
Kcurrent year = Klast year − Kdepreciated + I,
or Kcurrent year = Klast year − (Depreciation rate × Klast year) + I,
or Kcurrent year = (1 − Depreciation rate) × Klast year + I
Difficulty: Medium
50
15) A steady-state equilibrium refers to an equilibrium in which ________ remains constant over time.
A) the GDP per capita
B) the stock of physical capital
C) inequality
D) the poverty rate
Answer: B
Difficulty: Easy
Topic: Steady-State Equilibrium in the Solow Model
16) If d is the depreciation rate and K is the physical capital stock, the amount of investment required to
keep the economy in a steady state is given by ________.
A) I = d/K
B) I = d + K
C) I = d − K
D) I = d × K
Answer: D
Difficulty: Easy
17) If the depreciation rate in an economy is 10 percent and the physical capital stock in the economy is
$1,000, the level of investment required to keep the economy at a steady state is equal to ________.
A) $100
B) $110
C) $250
D) $1,000
Answer: A
Difficulty: Easy
18) For the physical capital stock of an economy to remain constant over time, the amount of investment
must ________.
A) exceed the depreciated value of the physical capital stock
B) be less than the depreciated value of the physical capital stock
C) be equal to the depreciated value of the physical capital stock
D) be equal to the depreciated value of the physical capital stock times the saving rate of the economy
Answer: C
Difficulty: Easy
51
19) What will happen to the steady-state equilibrium level of output and physical capital stock in an
economy if
a) there is an increase in the saving rate
b) there is a deterioration of human capital
Answer:
a) If there is an increase in the saving rate in an economy, it will have a steady-state equilibrium with a
higher level of capital stock and income than the initial steady-state equilibrium level.
b) If there is deterioration of human capital in an economy, it will have a steady-state equilibrium with a
lower level of physical capital stock and income than the initial steady-state equilibrium level.
Difficulty: Medium
Scenario: Kenya's economy is in steady-state equilibrium. It has capital stock valued at $48 billion and
GDP valued at $60 billion.
20) Refer to the scenario above. If the saving rate in Kenya is 10 percent, what must be the depreciation
rate in Kenya?
A) 8 percent
B) 10 percent
C) 12.5 percent
D) 15 percent
Answer: C
Difficulty: Medium
21) Refer to the scenario above. If the depreciation rate in Kenya is 10 percent, what must be the saving
rate in Kenya?
A) 8 percent
B) 10 percent
C) 12.5 percent
D) 15 percent
Answer: A
Difficulty: Medium
22) Refer to the scenario above. If the saving rate in Kenya is 10 percent, what is the value of aggregate
investment in Kenya?
A) $1.2 billion
B) $4.8 billion
C) $6 billion
D) $10.8 billion
Answer: C
Difficulty: Easy
52
23) If a country increases its saving rate, the steady-state equilibrium level of ________.
A) GDP will increase
B) physical capital stock will decrease
C) investment will decrease
D) efficiency units of labor will increase
Answer: A
Difficulty: Medium
Topic: Determinants of GDP
Scenario: Consider two countries: Country A and Country B. Both countries have the identical aggregate
production functions, populations, and efficiency units of labor, but they have different saving rates. The
saving rate is higher in Country A than in Country B.
24) Refer to the scenario above. If both economies have identical depreciation rates, then Country A's
steady-state equilibrium will ________ Country B's steady-state equilibrium.
A) lie to the right and below
B) lie to the right and above
C) lie to the left and above
D) lie to the left and below
Answer: B
Difficulty: Medium
25) Refer to the scenario above. If both economies have the same depreciation rate, then which of the
following statements will be true?
A) Country A will have a greater physical capital stock and a lower GDP than Country B.
B) Country A will have a greater physical capital stock and a higher GDP than Country B.
C) Country A will have a lower physical capital stock and a higher GDP than Country B.
D) Country A will have a lower physical capital stock and GDP than Country B.
Answer: B
Difficulty: Medium
26) If the investment on physical capital stock in an economy during a year is $40,000, the existing capital
stock in the economy is $80,000, and the depreciation rate of capital during the year is 10 percent, the
physical capital accumulated during the year is ________.
A) $40,000
B) $112,000
C) $124,000
D) $184,000
Answer: B
Difficulty: Medium
53
The following figure shows the production function and the relationship between investment and
physical capital stock for a given saving rate.
27) Refer to the figure above. If the physical capital stock is fixed at $300, the GDP in this economy is
________.
A) $4,000
B) $5,000
C) $6,000
D) $7,000
Answer: C
Difficulty: Medium
28) Refer to the figure above. If the physical capital stock is fixed at $300, the aggregate investment in this
economy will equal ________.
A) $4,000
B) $5,000
C) $6,000
D) $7,000
Answer: A
Difficulty: Medium
29) Refer to the figure above. If the physical capital stock is fixed at $300, the total consumption in this
economy will equal ________.
A) $2,000
B) $3,000
C) $4,000
D) $5,000
Answer: A
Difficulty: Medium
54
30) If a country's human capital improves, the country will have ________ for a given level of physical
capital stock.
A) a higher GDP
B) a lower GDP
C) more poverty
D) more inequality
Answer: A
Difficulty: Medium
Scenario: Consider two countries, Country A and Country B. Both countries have identical aggregate
production functions, populations, and efficiency units of labor, but they have different technologies. The
technology used in Country B is more advanced than that used in Country A.
31) Refer to the scenario above. Which of the following statements will be true?
A) Country A's steady-state equilibrium will lie to the right and below that of Country B.
B) Country A's steady-state equilibrium will lie to the right and above that of Country B.
C) Country A's steady-state equilibrium will lie to the left and above that of Country B.
D) Country A's steady-state equilibrium will lie to the left and below that of Country B.
Answer: D
Difficulty: Medium
32) Refer to the scenario above. Which of the following statements will be true in steady state?
A) Country A will have greater physical capital stock and lower GDP than Country B.
B) Country A will have greater physical capital stock and GDP than Country B.
C) Country A will have lower physical capital stock and higher GDP than Country B.
D) Country A will have lower physical capital stock and GDP than Country B.
Answer: D
Difficulty: Medium
33) Refer to the scenario above. If the size of the population is the same in both countries, at the steady-
state equilibrium, ________.
A) the physical capital stock will be the same in both countries
B) the GDP per capita will be the same in both countries
C) the GDP per capita of Country A will be higher than that of Country B
D) the GDP per capita of Country B will be higher than that of Country A
Answer: D
Difficulty: Hard
55
Scenario: Two countries (A and B) have the same aggregate production function, the same level of
technology, the same depreciation rate, and the same level of human capital. However, the saving rate is
higher in country A than in country B.
34) Refer to the scenario above. In the short run, which country must have the higher GDP?
A) Country A's GDP must be higher than Country B's GDP.
B) Country B's GDP must be higher than Country A's GDP.
C) The two countries' GDPs must be equal.
D) There is no way to determine which country's GDP must be higher from the information given.
Answer: D
Difficulty: Medium
35) Refer to the scenario above. In steady-state equilibrium, which country must have the higher GDP?
A) Country A's GDP must be higher than Country B's GDP.
B) Country B's GDP must be higher than Country A's GDP.
C) The two countries' GDPs must be equal.
D) There is no way to determine which country's GDP must be higher from the information given.
Answer: A
Difficulty: Medium
36) A ________ traces out the behavior of the economy over time.
A) comparative equilibrium
B) steady-state equilibrium
C) dynamic equilibrium
D) static equilibrium
Answer: C
Difficulty: Medium
Topic: Dynamic Equilibrium in the Solow Model
37) Which of the following is most likely if there is a war that destroys a country's stock of physical
capital to a level below the steady-state equilibrium?
A) The GDP of this country will be equal to the steady-state equilibrium level of GDP.
B) The GDP of this country will be higher than the steady-state equilibrium level of GDP.
C) The investment in physical capital will offset the depreciating physical capital.
D) The investment in physical capital will be lower than the amount required to replenish the
depreciating physical capital.
Answer: D
Difficulty: Medium
56
38) Movements away from equilibrium in the Solow model ________.
A) are automatically corrected
B) persist and cannot be corrected
C) are corrected only through government intervention
D) are corrected only when the country opens up to international trade
Answer: A
Difficulty: Easy
39) World War II resulted in the destruction of much of the United Kingdom's physical capital stock.
Assuming the country was in steady-state equilibrium before the war and nothing else changed, what
does the Solow Model predict about the years following World War II in the United Kingdom?
A) A new steady-state equilibrium would emerge, with the current level of physical capital.
B) A new steady-state equilibrium would emerge, with a level of physical capital between the current
level and the pre-war level.
C) The economy would never again reach a steady-state equilibrium.
D) The economy would eventually return to the old steady-state equilibrium, with the original level of
physical capital.
Answer: D
Difficulty: Hard
40) Which statement best describes the role of the saving rate in the Solow Model?
A) An increase in the saving rate results in higher steady-state GDP and faster sustained growth.
B) An increase in the saving rate results in higher steady-state GDP but not faster sustained growth.
C) An increase in the saving rate results in lower steady-state GDP but faster sustained growth.
D) An increase in the saving rate results in higher steady-state GDP but lower sustained growth.
Answer: B
Difficulty: Medium
Topic: Sources of Growth in the Solow Model
41) According to the Solow model, given the levels of total efficiency units of labor and technology,
________.
A) increases in the saving rate is the sole reason for sustained economic growth
B) increases in the rate of physical capital accumulation can be the sole reason for sustained economic
growth
C) there is a maximum fixed level of GDP that an economy can achieve by increasing saving
D) the physical capital stock does not play any role in the determination of the steady-state equilibrium
level of GDP
Answer: C
Difficulty: Medium
57
42) According to the Solow model, which of the following factors can lead to the sustained growth of a
nation?
A) An increase in the saving rate
B) An increase in physical capital stock
C) An improvement in the quality of human capital
D) An improvement in technology
Answer: D
Difficulty: Easy
43) The implication of the Solow model is that economic growth is sustainable when ________.
A) the ratio of physical capital stock to GDP remains constant as the economy grows over time
B) the ratio of physical capital stock to GDP decreases as the economy grows over time
C) the ratio of saving rate to depreciation rate remains constant as the economy grows over time
D) the ratio of saving rate to depreciation rate increases as the economy grows over time
Answer: A
Difficulty: Easy
44) If a country is growing at an annual rate of 5 percent, what will be its GDP after 5 years?
A) 1.8 times the current GDP
B) 1.28 times the current GDP
C) 3.21 times the current GDP
D) 5 times the current GDP
Answer: B
Difficulty: Medium
Topic: Calculating Average (Compound) Growth Rates
45) Which of the following is a limitation of using arithmetic averages to calculate growth rates?
A) Arithmetic averages are difficult to calculate.
B) Arithmetic averages cannot be used when growth is negative.
C) Arithmetic averages do not capture the exponential nature of growth and thus are not suitable for
long-run predictions.
D) The calculation of growth using arithmetic averages requires more data than other methods require.
Answer: C
Difficulty: Medium
58
A) Using either the arithmetic or geometric average to compute average growth rates gives similar
answers for long periods.
B) When the arithmetic average is used to calculate the growth rate, the exponential nature of growth is
taken into consideration.
C) When the geometric average is used to calculate the growth rate, the exponential nature of growth is
not taken into consideration.
D) Using either the arithmetic or geometric average to compute average growth rates gives similar
answers for short periods.
Answer: D
Difficulty: Medium
47) GDP per capita in New Zealand grew from $15,000 to $25,000 over 10 years. What formula should
you use to find New Zealand's average growth rate (g) over these 10 years?
A) g = (25,000 - 15,000)/10
B) 15,000 × (1 + g)10 = 25,000
C) 25,000 × (1 + g)10 = 15,000
D) g10 = (25,000 - 15,000)
Answer: B
Difficulty: Medium
48) GDP per capita in Fiji grew from $5,000 to $13,000 over 20 years. Its average growth rate over this
time is closest to ________.
A) 2 percent
B) 3 percent
C) 4 percent
D) 5 percent
Answer: D
Difficulty: Hard
Scenario: In 2000, world GDP per capita was $5,500. In 2010, world GDP per capita was $9,500.
49) Refer to the scenario above. What formula would you use to calculate the world average annual
growth rate g?
A) g = (9,500 - 5,500)/10
B) g10 = (9,500 - 5,500)
C) 5,500 × (1 + g)10 = 9,500
D) 9,500 × (1 + g)10 = 5,500
Answer: C
Difficulty: Medium
59
50) Refer to the scenario above. What was the world average annual growth rate from 2000 to 2010?
A) 5.6 percent
B) 6.0 percent
C) 6.3 percent
D) 7.3 percent
Answer: A
Difficulty: Medium
60

Macroeconomics 2nd Edition Acemoglu Test Bank

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Macroeconomics 2nd Edition Acemoglu Test Bank

Uploaded by

Copyright:

Available Formats

Macroeconomics 2nd Edition Acemoglu

7.1 The Power of Economic Growth

1) Real GDP refers to GDP adjusted for changes in ________.

3) Comparing GDPs over time requires the use of a ________.

Year GDP per capita

23) When current growth builds on past growth, growth is ________.

24) Which of the following statements is true?

50) Sustained growth refers to a growth process in which ________.

7.2 How Does a Nation's Economy Grow?

4) In a closed economy, ________ equal to zero.

8) In a closed economy without a government, ________.

10) Which of the following statements is true?

12) Explain how saving equals investment in a closed capitalist economy.

Country Country Country Country

18) The saving rate indicates ________.

21) Which of the following statements is true?

22) The saving rate in an economy equals ________.

40) Which of labor and capital experiences diminishing marginal product?

41) Sustained growth is best achieved through which of the following?

44) Which of the following statements is true?

45) Which of the following statements is true?

50) ________ experiences a growth pattern similar to that of an economy.

7.3 The History of Growth and Technology

7) Why was there essentially no sustained growth before modern times?

8) Fertility refers to ________.

12) Which of the following correctly identifies a Malthusian cycle?

16) Which of the following statements is true?

18) Describe the Malthusian Cycle.

21) Which statement about the Malthusian model is correct?

28) Which of the following statements is true of the Industrial Revolution?

32) Approximately when did the Industrial Revolution begin?

7.4 Growth, Inequality, and Poverty

1) Which of the following statements is true of inequality in the U.S. economy?

8) Which of the following is a problem associated with extreme levels of poverty?

12) On an average, growth in per capita income is associated with a ________.

13) Which of the following statements is true?

14) Which of the following statements is true?

Appendix: The Solow Growth Model

8) Which of the following statements is true?

14) What is the physical capital accumulation equation used by Solow?

You might also like