GDP And Economic Growth 2 — Questions and Answers
Question 1: Which of the following best measures the rate of economic growth?
- The absolute level of GDP
- The percentage change in real GDP over time (Correct answer)
- The trade balance surplus
- The unemployment rate decline
Correct answer: The percentage change in real GDP over time
Economic growth is measured as the percentage change in real GDP from one period to the next.
Question 2: What is the 'Rule of 70' used for in economics?
- Calculating the tax burden on GDP
- Estimating how long it takes GDP to double at a given growth rate (Correct answer)
- Determining the optimal savings rate
- Measuring inflation's effect on purchasing power
Correct answer: Estimating how long it takes GDP to double at a given growth rate
The Rule of 70 divides 70 by the annual growth rate to estimate the number of years it takes for GDP to double.
Question 3: Which factor is considered a PRIMARY driver of long-run economic growth?
- Short-term consumer spending boosts
- Productivity improvements and technological progress (Correct answer)
- Temporary tax cuts
- Increased government transfer payments
Correct answer: Productivity improvements and technological progress
Long-run growth is driven by improvements in productivity and technology, which increase output per worker.
Question 4: In the context of GDP and economic growth, what does 'capital deepening' mean?
- Increasing the money supply
- Raising the capital gains tax rate
- Increasing the amount of physical capital per worker (Correct answer)
- Deepening financial markets through new instruments
Correct answer: Increasing the amount of physical capital per worker
Capital deepening refers to an increase in the stock of physical capital per worker, which raises labor productivity.
Question 5: A country grows at 2% per year. Approximately how many years will it take for its GDP to double?
- 20 years
- 25 years
- 35 years (Correct answer)
- 50 years
Correct answer: 35 years
Using the Rule of 70: 70 ÷ 2 = 35 years for GDP to double.
Question 6: Which scenario represents a supply-side source of economic growth?
- Government stimulus spending increasing aggregate demand
- Consumers taking on more debt to buy goods
- Improvements in worker education and skills (Correct answer)
- Central bank lowering interest rates
Correct answer: Improvements in worker education and skills
Supply-side growth sources include improvements in human capital such as education and worker skills, which expand productive capacity.
Question 7: What is 'potential GDP'?
- The highest GDP ever recorded by a country
- The level of output when all resources are fully and efficiently employed (Correct answer)
- GDP adjusted for inflation only
- The GDP projected for the next fiscal year
Correct answer: The level of output when all resources are fully and efficiently employed
Potential GDP is the level of real output the economy can sustain when all resources, including labor, are fully employed.
GDP And Economic Growth 2
Which of the following best measures the rate of economic growth?