Question 1

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

Accepted Answer

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

Question 2

Suppose real GDP in 2021 was $$21.4$$ trillion and in 2022 it was $$21.8$$ trillion. What was the growth rate of real GDP from 2021 to 2022? Use the formula $$	ext{Growth Rate} = \frac{	ext{New Value} - 	ext{Old Value}}{	ext{Old Value}} 	imes 100\%.$$

Accepted Answer

$$1.87\%$$

Question 3

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

Accepted Answer

An increase in the population without an increase in capital or technology.

Question 4

The Rule of 70 is used to estimate:

Accepted Answer

The number of years it takes for a variable to double, given its annual growth rate.

Question 5

Which of the following best explains why property rights are important for economic growth?

Accepted Answer

They ensure that individuals and firms have the incentive to invest and innovate.

Question 6

If the government runs a budget deficit, what is the likely effect on the market for loanable funds?

Accepted Answer

The supply of loanable funds decreases, raising the equilibrium real interest rate.

Question 7

Which of the following equations correctly expresses investment in a closed economy?

Accepted Answer

$$I = Y - C - G$$

Question 8

What is crowding out?

Accepted Answer

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

Question 9

Which of the following is a service provided by the financial system?

Accepted Answer

Risk sharing, liquidity, and information.

Question 10

During a recession, which of the following typically occurs?

Accepted Answer

Unemployment rises and inflation falls.

Question 11

Suppose the average annual growth rate of real GDP over three years is calculated as follows: $$-2.2\% in 2020$$, $$5.8\% in 2021$$, and $$1.9\% in 2022. $$What is the average annual growth rate over this period?

Accepted Answer

$$1.83\%$$

Question 12

Which of the following best describes potential GDP?

Accepted Answer

The level of real GDP attained when all firms are operating at capacity.

Question 13

Which of the following is a plausible reason why the effect of government budget deficits on the equilibrium interest rate is relatively small?

Accepted Answer

Interest rates are influenced by global markets, so domestic borrowing is a minor factor.

Question 14

Which of the following is NOT a typical feature of the business cycle?

Accepted Answer

Real GDP rises consistently every year.

Question 15

Which of the following is a correct statement about the relationship between economic prosperity and health?

Accepted Answer

Richer nations can devote more resources to health, and healthier citizens are more productive.

Question 16

Which of the following is an example of a financial intermediary?

Accepted Answer

A mutual fund.

Question 17

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

Accepted Answer

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

Question 18

Which of the following is a reason why economists cannot reliably predict recessions?

Accepted Answer

Business cycles are not uniform and leading indicators are unreliable.

Question 19

Which of the following is a likely effect of the establishment of unemployment insurance on the business cycle?

Accepted Answer

It helps stabilize consumer spending during recessions.

Question 20

Which of the following best describes the concept of 'crowding out' in the context of the loanable funds market?

Accepted Answer

Government borrowing reduces the funds available for private investment, raising interest rates.

Economic Growth, the Financial System, and Business Cycles: Study Notes

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