GDP and Growth Flashcards
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Read the first 7 GDP and Growth flashcards as text
Which of the following would cause the production possibilities frontier (PPF) to shift outward, reflecting long-run economic growth?
Answer: An improvement in technology
Technological progress increases productive capacity, shifting the PPF outward and enabling the economy to produce more of all goods.
Country A has a real GDP of $1 trillion and a population of 50 million. Country B has a real GDP of $800 billion and a population of 20 million. Which country has a higher standard of living as measured by real GDP per capita?
Answer: Country B, because its GDP per capita is higher
Country A: $1T/50M = $20,000 per capita; Country B: $800B/20M = $40,000 per capita, so B has a higher standard of living.
In the income approach to measuring GDP, which of the following is NOT included?
Answer: Welfare transfer payments
Transfer payments like welfare redistribute existing income but do not represent payments for current production, so they are excluded from GDP.
When a car manufacturer buys steel to produce automobiles, the steel purchase is:
Answer: Not counted in GDP to avoid double-counting, since the car's value includes the steel
To avoid double-counting, GDP counts only final goods; the value of the steel is already embedded in the final price of the automobile.
Which of the following correctly describes the relationship between saving, investment, and economic growth in a closed economy?
Answer: Higher saving funds more investment, which can expand productive capacity
In a closed economy, national saving equals investment (S = I), so increased saving provides loanable funds for investment that builds capital and supports growth.
Which factor is most associated with sustained long-run economic growth according to mainstream growth theory?
Answer: Capital accumulation combined with technological progress
Growth models (e.g., Solow) identify capital deepening and technological change as the primary engines of sustained long-run output growth.
If the GDP deflator in Year 1 is 120 and in Year 2 is 126, the inflation rate between the two years is approximately:
Answer: 5%
Inflation rate = (126 − 120) / 120 × 100 = 5%, measuring the percentage change in the overall price level.