GDP And Economic Growth 3

Question 1

The Solow Growth Model attributes long-run per capita GDP growth primarily to which factor?

Accepted Answer

Technological progress

Answer

In the Solow model, only technological progress (total factor productivity growth) sustains long-run per capita income growth.

Question 2

Which phenomenon occurs when poorer countries grow faster than richer ones, closing the income gap?

Accepted Answer

Convergence hypothesis

Answer

The convergence hypothesis predicts that poorer economies will grow faster and eventually catch up to wealthier ones.

Question 3

An economy operating below its potential GDP is experiencing what?

Accepted Answer

A negative output gap (recessionary gap)

Answer

When actual GDP is below potential GDP, there is a negative output gap, indicating underutilized resources.

Question 4

Which policy is considered a SUPPLY-SIDE approach to boosting long-run economic growth?

Accepted Answer

Cutting income tax rates to increase investment incentives

Answer

Supply-side policies like tax rate cuts aim to increase incentives to work, save, and invest, expanding productive capacity.

Question 5

How does human capital investment contribute to GDP growth?

Accepted Answer

It raises worker productivity and output per person

Answer

Investment in human capital — education, training, and health — increases worker productivity, which drives higher output and GDP growth.

GDP - Gross Domestic Product Practice Test