Q: Which formula correctly calculates the growth rate of GDP per capita between two years?

$$\text{growth rate} = \frac{y_{\text{year 2}} - y_{\text{year 1}}}{y_{\text{year 1}}}$$

Question 1

Which of the following best explains the 'hockey stick' pattern in the history of living standards, as discussed in the CORE Economy 2.0 Microeconomics textbook?

Accepted Answer

A long period of stable living standards followed by a sharp rise due to continuous technological change.

Question 2

According to the Malthusian model, what happens when technological improvements temporarily increase agricultural productivity?

Accepted Answer

Population increases, which eventually brings living standards back to subsistence levels.

Question 3

Which formula correctly calculates the growth rate of GDP per capita between two years?

Accepted Answer

$$	ext{growth rate} = \frac{y_{	ext{year 2}} - y_{	ext{year 1}}}{y_{	ext{year 1}}}$$

Question 4

Why is GDP per capita adjusted using Purchasing Power Parity (PPP) when comparing living standards across countries?

Accepted Answer

To adjust for differences in the prices of non-traded goods and services between countries.

Question 5

Suppose three people have incomes of 12, 4, and 2. What is the Gini coefficient for this group? Use the formula $$g = 0.5 	imes \frac{	ext{average difference}}{	ext{mean income}}.$$

Accepted Answer

$$g = 0.56$$

Question 6

Which of the following statements about the Lorenz curve is correct?

Accepted Answer

The Lorenz curve is a straight line at 45 degrees when there is perfect equality.

Question 7

If a country’s Gini coefficient decreases from 0.47 to 0.25 after taxes and transfers, what does this indicate?

Accepted Answer

Redistributive policies have reduced income inequality.

Question 8

Which of the following is NOT a limitation of using GDP per capita as a measure of living standards?

Accepted Answer

It includes the value of intermediate goods, leading to double counting.

Question 9

In the context of the Lewis Dual Economy Model, what is the main driver of workers moving from the subsistence sector to the capitalist sector?

Accepted Answer

Higher wages and productivity in the capitalist sector.

Question 10

Which of the following best describes a developmental state?

Accepted Answer

A state that plays a leading role in guiding market activity to promote economic growth.

Question 11

If the price of all goods in an economy doubles but the quantity produced remains the same, what happens to nominal and real GDP?

Accepted Answer

Nominal GDP doubles, but real GDP remains unchanged.

Question 12

Which of the following is a key feature of capitalism that contributed to the escape from the Malthusian trap?

Accepted Answer

The combination of private property, markets, and firms.

Question 13

A country has a GDP per capita of $$10,000 in 2020 and 10$$,500 in 2021. What is the growth rate of GDP per capita?

Accepted Answer

$$\frac{10,500 - 10,000}{10,000} = 0.05 = 5\%$$

Question 14

Which of the following scenarios would result in a Gini coefficient of zero?

Accepted Answer

All individuals have the same income.

Question 15

Why might using market exchange rates to compare GDP across countries be misleading?

Accepted Answer

Because exchange rates do not reflect differences in the prices of non-traded goods and services.

Question 16

Which of the following best describes the effect of environmental depletion on GDP as a measure of wellbeing?

Accepted Answer

GDP may overstate wellbeing if it does not account for the depletion of natural resources.

Question 17

In the Malthusian model, what is the main reason living standards do not rise permanently with technological progress?

Accepted Answer

Population growth offsets productivity gains, keeping incomes at subsistence levels.

Question 18

If the area between the Lorenz curve and the line of perfect equality (A) is 0.2 and the area under the Lorenz curve (B) is 0.3, what is the Gini coefficient?

Accepted Answer

$$g = \frac{0.2}{0.2 + 0.3} = 0.4$$

Question 19

Which of the following is a real-world example of how PPP adjustment affects international comparisons of living standards?

Accepted Answer

The Big Mac Index shows that $100 buys more burgers in South Africa than in the USA, so PPP-adjusted GDP per capita for South Africa is higher than if calculated using exchange rates.

Microeconomics Study Guide: Prosperity, Inequality, and Planetary Limits

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