Question 1

According to the Solow model, which of the following is the primary driver of long-run economic growth?

Accepted Answer

Productivity growth, especially through technological change

Question 2

Suppose a country increases its capital per worker $$(K/L)$$ while holding technology constant. According to the law of diminishing returns, what will happen to output per worker $$(Y/L)$$?

Accepted Answer

It will increase, but by smaller and smaller amounts

Question 3

Which of the following best describes 'technological change' in the context of the Solow model?

Accepted Answer

An increase in output using the same amount of inputs

Question 4

If a country’s real GDP per capita was $$10,000 in 2000 $$and $$20,000 in 2020$$, what was the average annual growth rate of real GDP per capita over this period? Use the formula:

$$\displaystyle 	ext{Annual growth rate} = \frac{	ext{Real GDP}_{2020} - 	ext{Real GDP}_{2000}}{	ext{Real GDP}_{2000}} 	imes 100$$

Accepted Answer

$$100\%$$ over 20 years, so $$5\%$$ per year

Question 5

Which of the following is NOT a way government policy can promote technological change according to New Growth Theory?

Accepted Answer

Imposing tariffs on imported goods

Question 6

The 'Rule of 70' is used to estimate:

Accepted Answer

The number of years it takes for real GDP to double, given a constant growth rate

Question 7

A country with a low rate of savings and investment is likely to experience:

Accepted Answer

Slower economic growth

Question 8

Which of the following is an example of 'creative destruction' as described by Schumpeter?

Accepted Answer

A new technology making an old industry obsolete

Question 9

If a country’s real GDP grows at an average annual rate of $$3.5\%$$, how many years will it take for its real GDP to double? Use the Rule of 70:

$$\displaystyle 	ext{Years to double} = \frac{70}{	ext{Growth Rate}}$$

Accepted Answer

$$20$$ years$$\ (\frac{70}{3.5} = 20)$$

Question 10

Which of the following is a plausible reason why some low-income countries have not caught up to high-income countries, according to the study materials?

Accepted Answer

Inability to gain access to foreign markets

Question 11

Suppose a country invests heavily in physical capital but neglects education and health. According to the Solow model and the study materials, what is the likely long-term outcome?

Accepted Answer

Growth will eventually slow due to diminishing returns and lack of human capital

Question 12

Which of the following best explains the 'residual' in economic growth accounting, as discussed in the Solow model?

Accepted Answer

Growth that cannot be explained by increases in capital or labor, often attributed to technological change

Question 13

If a country’s real GDP per hour worked $$(Y/L)$$ increases while the capital per hour worked $$(K/L)$$ remains constant, what is the most likely explanation?

Accepted Answer

An increase in technological progress or human capital

Question 14

Which of the following is a key insight of Romer’s New Growth Theory?

Accepted Answer

Accumulation of knowledge and ideas is central to economic growth

Question 15

A country with high levels of R&D expenditure but weak intellectual property rights is likely to experience:

Accepted Answer

Lower than expected innovation due to free-riding

Question 16

Which of the following scenarios best illustrates the convergence theory?

Accepted Answer

A poor country experiencing a higher growth rate in GDP per capita than a rich country

Question 17

If a country’s real GDP per capita grows from $$2,000 to$$ $$8,000$$ over 28 years, what is the approximate average annual growth rate? Use the Rule of 70.

Accepted Answer

$$70 \div 28 = 2.5\%$$ per year

Question 18

Which of the following is NOT a factor that slows down economic growth in poor countries, according to the study materials?

Accepted Answer

Strong access to foreign markets

Question 19

If a government wants to encourage more innovation and technological change, which policy would be LEAST effective?

Accepted Answer

Reducing funding for public education

Question 20

A country’s per-worker production function shifts upward. Which of the following is the most likely cause?

Accepted Answer

An improvement in technology or human capital

Long-Run Economic Growth: The Solow Model and New Growth Theory

Study Guide - Practice Questions

Study Guide - Flashcards