Question 1

Which of the following best explains why the Industrial Revolution led to sustained economic growth in England?

Accepted Answer

The British government began to uphold property rights and protect wealth, encouraging investment.

Question 2

Suppose a country’s real GDP per capita grows at an average annual rate of 2.2%. Using the rule of 70, approximately how many years will it take for the country’s real GDP per capita to double?

Accepted Answer

$$70 \div 2.2 \approx 31.8$$ years

Question 3

Which of the following is NOT a main source of technological change according to the economic growth model?

Accepted Answer

Increasing the amount of natural resources used in production

Question 4

A country with a low capital stock is likely to experience which of the following when it increases capital per hour worked?

Accepted Answer

Large increases in output per hour worked due to diminishing returns not yet being significant

Question 5

According to new growth theory, why does knowledge capital generate increasing returns at the economy level?

Accepted Answer

Knowledge capital is nonrival and nonexcludable, so its benefits spread widely.

Question 6

Which government policy is most directly aimed at solving the problem of free riding in the creation of knowledge capital?

Accepted Answer

Granting patents and copyrights

Question 7

If a country’s per-worker production function exhibits diminishing returns to capital, what will happen as more and more capital is added, holding technology constant?

Accepted Answer

Each additional unit of capital will increase output by a smaller amount.

Question 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

The U.S. has more flexible labor markets and a more efficient financial system.

Question 10

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

Accepted Answer

Weak institutions and poor enforcement of property rights

Question 11

Suppose Country A and Country B both start with the same real GDP per capita in 1960. Country A grows at 1.5% per year, while Country B grows at 3% per year. After 50 years, which country will have a higher standard of living, and why?

Accepted Answer

Country B, because small differences in growth rates compound to large differences over time.

Question 12

Which of the following is an example of a pro-growth policy?

Accepted Answer

Subsidizing education to increase human capital

Question 13

If a country wants to escape the 'vicious cycle' of low savings and investment, which policy is most likely to help?

Accepted Answer

Opening up to globalization and encouraging foreign direct investment

Question 14

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

Accepted Answer

Poorer countries will grow faster than richer countries, narrowing the income gap.

Question 15

Which of the following is a potential downside of economic growth, especially in high-income countries?

Accepted Answer

Negative effects on the environment

Question 16

If technological change shifts the per-worker production function upward, what is the likely effect on real GDP per hour worked?

Accepted Answer

Real GDP per hour worked increases at every level of capital per hour worked.

Question 17

Which of the following is an example of a public good in the context of economic growth?

Accepted Answer

Knowledge capital generated by research and development

Question 18

Why might GDP growth understate actual improvements in living standards, especially in recent decades?

Accepted Answer

Many service improvements and increases in consumer surplus are not fully captured in GDP statistics.

Question 19

Which of the following is a reason why China’s standard of living may not surpass that of the United States, even if its growth rate remains high for several years?

Accepted Answer

Much of China’s growth is due to capital investment, which will eventually face diminishing returns.

Question 20

Which of the following best explains why protecting intellectual property is important for economic growth?

Accepted Answer

It increases firms’ incentives to invest in research and development.

Chapter 11: Long-Run Economic Growth—Sources and Policies

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