GDP And Economic Growth 5 — Questions and Answers
Question 1: What does it mean when an economy experiences 'jobless growth'?
- GDP declines while employment rises
- GDP grows but unemployment does not fall significantly (Correct answer)
- There are no new job openings despite low GDP
- The economy grows only through automation tax credits
Correct answer: GDP grows but unemployment does not fall significantly
Jobless growth occurs when GDP expands but employment does not rise proportionally, often due to productivity gains or structural changes.
Question 2: Which of the following is an example of EXTENSIVE economic growth?
- Improving worker productivity through better technology
- Adding more workers and physical capital to increase total output (Correct answer)
- Increasing GDP per worker through education
- Innovating production processes to get more from fewer inputs
Correct answer: Adding more workers and physical capital to increase total output
Extensive growth means increasing output by adding more inputs (labor or capital), rather than using existing inputs more efficiently.
Question 3: When real GDP growth is consistently below the growth rate of the labor force, what typically happens?
- Inflation accelerates
- Unemployment tends to rise (Correct answer)
- The trade deficit narrows
- Interest rates fall automatically
Correct answer: Unemployment tends to rise
If GDP growth is too slow to absorb new labor force entrants, unemployment rises as jobs aren't created fast enough.
Question 4: What is Okun's Law?
- The relationship between inflation and money supply growth
- The rule that GDP doubles every 70 years
- The empirical relationship between the output gap and changes in the unemployment rate (Correct answer)
- The law stating that governments must balance budgets during recessions
Correct answer: The empirical relationship between the output gap and changes in the unemployment rate
Okun's Law is the empirical finding that for every 1% the unemployment rate falls below its natural rate, GDP is roughly 2% above potential.
Question 5: Which factor helps explain why some low-income countries have NOT converged toward high-income country living standards?
- They have too much physical capital
- Institutional barriers, poor governance, and lack of property rights (Correct answer)
- Their populations are too small to benefit from trade
- They save too much and invest too little in consumption
Correct answer: Institutional barriers, poor governance, and lack of property rights
Poor institutions, weak governance, and insecure property rights discourage investment and innovation, preventing convergence.
Question 6: How does trade openness generally affect economic growth?
- It reduces growth by exposing domestic industries to foreign competition
- It is neutral and has no measurable effect on GDP growth
- It tends to boost growth through specialization, technology transfer, and larger markets (Correct answer)
- It only helps large economies and hurts small ones
Correct answer: It tends to boost growth through specialization, technology transfer, and larger markets
Open economies benefit from comparative advantage, access to foreign technology, and larger export markets, all of which support higher GDP growth.
Question 7: Which combination of factors best explains the 'East Asian economic miracle' of rapid GDP growth in the late 20th century?
- Large natural resource endowments and favorable climate
- High savings rates, export-oriented policies, and heavy investment in education (Correct answer)
- Declining population and abundant foreign aid
- Fixed exchange rates and closed financial markets
Correct answer: High savings rates, export-oriented policies, and heavy investment in education
The East Asian miracle was driven by exceptionally high savings and investment rates, export-led growth strategies, and strong human capital development.
GDP And Economic Growth 5
What does it mean when an economy experiences 'jobless growth'?