And Economic Growth Flashcards
7 cards from real GDP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 And Economic Growth flashcards as text
The Solow Growth Model attributes long-run per capita GDP growth primarily to which factor?
Answer: Technological progress
In the Solow model, only technological progress (total factor productivity growth) sustains long-run per capita income growth.
Which phenomenon occurs when poorer countries grow faster than richer ones, closing the income gap?
Answer: Convergence hypothesis
The convergence hypothesis predicts that poorer economies will grow faster and eventually catch up to wealthier ones.
An economy operating below its potential GDP is experiencing what?
Answer: A negative output gap (recessionary gap)
When actual GDP is below potential GDP, there is a negative output gap, indicating underutilized resources.
Which policy is considered a SUPPLY-SIDE approach to boosting long-run economic growth?
Answer: Cutting income tax rates to increase investment incentives
Supply-side policies like tax rate cuts aim to increase incentives to work, save, and invest, expanding productive capacity.
How does human capital investment contribute to GDP growth?
Answer: It raises worker productivity and output per person
Investment in human capital — education, training, and health — increases worker productivity, which drives higher output and GDP growth.
What is 'creative destruction' in the context of economic growth?
Answer: The process by which innovation eliminates old industries while creating new ones
Creative destruction, a term from economist Joseph Schumpeter, describes how innovation displaces outdated industries, driving long-run growth.
Which of the following would SLOW long-run economic growth?
Answer: Declining educational attainment across the population
Declining educational attainment reduces human capital accumulation, lowering productivity and long-run growth potential.