Question 1

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

Accepted Answer

The British government guaranteed property rights after the Glorious Revolution, encouraging investment and entrepreneurship.

Question 2

According to the economic growth model, which factor is most likely to result in diminishing returns to output per worker?

Accepted Answer

Increasing capital per worker while holding technology constant.

Question 3

Suppose Country A has a real GDP per capita growth rate of 1.7% and Country B has a rate of 2.3%. Over 50 years, which country will experience a greater increase in living standards, and by approximately how much?

Accepted Answer

Country B; about 212% increase in real GDP per capita.

Question 4

Which of the following is NOT considered a main source of technological change in the economic growth model?

Accepted Answer

Increasing the number of hours worked by employees.

Question 5

Why did the Soviet Union's economic growth slow down despite increasing its capital stock?

Accepted Answer

Diminishing returns to capital and lack of incentives for technological innovation.

Question 6

According to Paul Romer's new growth theory, what is the key difference between physical capital and knowledge capital?

Accepted Answer

Physical capital is rival and excludable, while knowledge capital is nonrival and nonexcludable.

Question 7

Which government policy is most effective in encouraging the generation of knowledge capital?

Accepted Answer

Protecting intellectual property through patents and copyrights.

Question 8

Joseph Schumpeter's concept of 'creative destruction' refers to:

Accepted Answer

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

Question 9

Why do high-income countries sometimes fail to catch up to the United States in terms of 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 for slow economic growth in many low-income countries?

Accepted Answer

Failure to enforce the rule of law and protect property rights.

Question 11

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

Accepted Answer

Encouraging foreign direct investment and foreign portfolio investment.

Question 12

Suppose a country increases its capital per worker but does not experience technological change. According to the per-worker production function, what will happen to output per worker?

Accepted Answer

Output per worker will increase, but at a decreasing rate due to diminishing returns.

Question 13

Which formula correctly calculates the average annual growth rate $$g$$ over $$n$$ years, given initial value $$V_0$$ and final value $$V_n$$?

Accepted Answer

$$g = \frac{V_n}{V_0$}^{\frac{1}{n}} - 1$$

Question 14

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

Accepted Answer

Facilitating access to foreign technology through foreign direct investment.

Question 15

A country with weak public education and poor health care is likely to experience:

Accepted Answer

Lower labor productivity and slower economic growth.

Question 16

Which of the following statements about economic growth is FALSE?

Accepted Answer

Short-term growth always leads to long-term improvements in living standards.

Question 17

If a country’s GDP per capita was $$1,000 in 1960 and grew at an average annual rate of 2% for 60 years, what would its GDP per capita be in 2020? (Use $$GDP_{2020} = GDP_{1960} 	imes (1 + $$g)^{n}$)

Accepted Answer

$$GDP_{2020} = 1000 	imes (1.02$$)^{60}$$ \approx 3,281$$

Question 18

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 gap in income per capita.

Question 19

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

Accepted Answer

Environmental degradation and depletion of natural resources.

Long-Run Economic Growth: Sources and Policies (Chapter 7 Study Notes)

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