CB2402 Macroeconomics

Self-study Exercise - Week 3 Part 2

Chapter 22 Long-run Economic Growth: Sources and Policies

1) If real GDP in the United States is growing at an annual rate of 3.2% per capita and
Bolivia's real GDP per capita is growing at a rate of 1.3%, which of the following
would we expect in the long run? Assume real GDP per capita in the United States
begins at a level above that of real GDP per capita in Bolivia.
A) Real GDP per capita in the United States will always be 1.9% higher than real
GDP per capita in Bolivia.
B) The difference between the level of real GDP per capita in the United States and
real GDP per capita in Bolivia will shrink over time.
C) The difference between the level of real GDP per capita in the United States and
real GDP per capita in Bolivia will increase over time.
D) The difference between the level of real GDP per capita in the United States and
real GDP per capita in Bolivia will always be $1.9 trillion.

2) If real GDP per capita in the United States is $8,000 in 2016, and if real GDP per
capita is $12,000 in 2026, what is the total percent change in the growth rate of GDP
per capita between 2016 and 2026?
A) 3.33%
B) 5%
C) 33%
D) 50%

3) When an economy faces diminishing returns

A) the slope of the per-worker production function becomes steeper as capital per
hour worked increases.
B) the slope of the per-worker production function becomes flatter as capital per hour
worked increases.
C) the per-worker production function shifts to the left.
D) the per-worker production function shifts to the right.

4) In a small European country, it is estimated that changing the level of capital from
$8 million to $10 million will increase real GDP from $2 million to $3 million. If the
number of hours worked in the labor force does not change, what does this
information tell you about the slope of the per-worker production function in this
range?
A) The slope is -2.
B) The slope is 1/2.
C) The slope is 2.
D) The slope is 4.

5) Because of the productivity slowdown in the United States from the mid-1970s
through the mid-1990s
A) real GDP per capita grew more rapidly.
B) real GDP per capita grew more slowly.
C) the standard of living did not change.
D) the standard of living increased in the United States.

6) The industrialized group of countries has growth rates that are consistent with the
findings of the economic growth model. That is, Taiwan, Korea, and Singapore had
________ incomes in 1960 than the United States and Switzerland, and Taiwan,
Korea, and Singapore grew ________ than the United States and Switzerland between
1960 and 2010.
A) lower; more rapidly
B) greater; less rapidly
C) lower; less rapidly
D) greater; more rapidly

Table 22-4
Real GDP per Capita Growth in Real GDP per
Country (in 1996 dollars) Capita, 1960-2000

Botswana $958 5.29%

Thailand 1,091 4.70%

Japan 4,544 4.32%

Guatemala 2,344 1.29%

7) Refer to Table 22-4. In the table above, which countries are consistent with the
predictions of the economic growth model?
A) Botswana and Thailand
B) Japan and Guatemala
C) only Japan
D) all four countries
8) Foreign investment can give a low-income country
A) access to funds for investment and access to technology.
B) the means to slow down growth.
C) a path to dependency and low growth.
D) no hope to break the vicious cycle of poverty.

9) You are an economic advisor to the president. You are asked to recommend a
policy to promote long-term economic growth in the economy. Which of the
following policies would you choose?
A) a reduction in sales taxes
B) an investment tax credit
C) a reduction in taxes on luxury yachts
D) all of the above

10) How can economic growth help a country combat "brain drain"?
A) Economic growth increases the incomes of low-skilled workers relative to high-
skilled workers.
B) Economic growth opens up opportunities for better jobs and higher incomes for
skilled workers.
C) Economic growth allows highly skilled persons to earn more in a foreign country
than in their native country.
D) Economic growth combined with decreasing returns to human capital require
workers to achieve steadily higher and higher levels of education over time.
Answer to Self-study Exercise – Week 3 Part 2

Chapter 22

MCQ Answer

1 C

2 D

3 B

4 B

5 B

6 A

7 A

8 A

9 B

10 B