Chapter 25.1

Question 1

Over a long period of time, perhaps many years, changes in real GDP come primarily from
A) upward shifts of the AS curve.
B) upward shifts of the AE curve.
C) rightward shifts of the AD curve.
D) continuous increases in potential GDP.
E) leftward shifts of the AD curve.

Answer 1

D

Question 2

Between the years 1960 and 2014, the Canadian economy experienced growth in real GDP at an average annual rate of \_\_\_\_\_\_\_\_%.
A) 0.7
B) 1.2
C) 1.9
D) 3.3
E) 6.3

Answer 2

D

Question 3

In the long run, changes in average material living standards are best shown by 
A) growth in real GDP.
B) population growth.
C) growth in real per capita GDP.
D) improvements in fiscal policy.
E) improvements in monetary policy.

Answer 3

C

Question 4

The compounding of economic growth rates means that
A) a large increase in investment today has little effect on national income over the long run.
B) small changes in sustained growth rates can have a significant impact on national income over several decades.
C) consumers should not save, given the low real returns that compounding produces.
D) a 10% annual rate of return will double an investment in less than 6 years.
E) a 2% annual growth rate of GDP will double national income in 27 years.

Answer 4

B

Question 5

If per capita GDP in a richer country grows at a faster annual rate than in a poorer country,
A) the gap between their standards of living will widen over time.
B) the gap between their standards of living will close over time.
C) the gap between their standards of living will close over time as long as the rate of population growth is higher in the poorer country.
D) whether the gap in living standards widens or closes over time depends on the absolute size of the relative growth rates.
E) the difference in their living standards will not change over time.

Answer 5

A

Question 6

If GDP in a richer country grows at the same annual rate as in a poorer country, the
A) gap between their standards of living will widen over time.
B) gap between their standards of living will close over time.
C) gap between their standards of living will close over time as long as the rate of population growth is lower in the poorer country.
D) gap between their standards of living will close over time as long as the rate of population growth is lower in the richer country.
E) difference in their living standards will not change over time.

Answer 6

C

Question 7

A common measure of a country's level of productivity is 
A) the average efficiency of capital.
B) the capital-output ratio.
C) output per capita.
D) output per unit of labour input.
E) per capita GDP.

Answer 7

D

Question 8

A common measure of a country’s rate of economic growth is
A) the marginal efficiency of capital.
B) the capital-output ratio.
C) the level of output per capita.
D) the change in output per capita.
E) the level of real gross domestic product.

Answer 8

D

Question 9

Over the long term, by far the most potent force for raising average material living standards is
A) economic growth.
B) reducing inefficiencies.
C) redistributing income.
D) increasing the money supply.
E) appropriate fiscal policies.

Answer 9

A

Question 10

If real income grows at approximately 2% per year, the number of years it will take for real income to double is approximately 
A) 5.
B) 12.
C) 24.
D) 36.
E) 72.

Answer 10

D

Question 11

If real income grows at approximately 4% per year, the number of years it will take for real income to double is approximately 
A) 5.
B) 12.
C) 18.
D) 36.
E) 72.

Answer 11

C

Question 12

Of the variables listed below, the best measure of a nation's average material standard of living is
A) nominal GDP.
B) percent change in nominal GDP.
C) per capita real GDP.
D) per capita nominal GDP.
E) real GDP.

Answer 12

C

Question 13

The theory of economic growth concentrates on the ________ over the long run, not on ________.
A) growth of investment in capital goods; short-run fluctuations of investment
B) growth of real GDP; growth of potential GDP
C) factor utilization rates; growth of the supplies of factors
D) factor utilization rates; growth of real GDP
E) growth of potential output; fluctuations of output around potential

Answer 13

E

Question 14

Which of the following is the best example of the acquisition of human capital?
A) A worker takes a training course that increases his/her productivity.
B) A worker receives new machinery enabling him/her to do the amount of work that was formerly done by two workers.
C) A worker communicates more quickly and accurately with suppliers because of upgrades to communications software.
D) A government-sponsored program increases the amount of investment available per worker.
E) A computer chip manufacturer introduces a faster processor for micro-computing.

Answer 14

A

Question 15

The four major determinants of economic growth include all of the following EXCEPT
A) technological improvement.
B) growth in physical capital.
C) growth in human capital.
D) growth in financial capital.
E) growth in the labour force.

Answer 15

D

Question 16

Refer to Table 25-1. If this economy is growing at an annual rate of 2%, then real GDP in Year 50 will be 
A) 1645.
B) 1126.
C) 2692.
D) 500.
E) 51 000.

Answer 16

C

Question 17

Refer to Table 25-1. If this economy is growing at an annual rate of 4%, then real GDP in Year 50 will be
A) 2000.
B) 1268.
C) 2255.
D) 7107.
E) 51 000.

Answer 17

D

Question 18

Refer to Table 25-1. What is real GDP in this economy in Year 20 if the annual growth rate is 1%? 
A) 200
B) 1020
C) 1220
D) 6727
E) 20 200

Answer 18

C

Question 19

Refer to Table 25-1. What is real GDP in this economy in Year 20 if the annual growth rate is 4%?
A) 2191
B) 8000
C) 20 800
D) 80 000
E) 836 683

Answer 19

A

Question 20

Refer to Figure 25-1. Which of the following statements best describes what we know about the difference between the two economies at Year 0?
A) Economy A has a higher level of real GDP at Year 0 than Economy B.
B) Economy B’s households are consuming a larger percentage of GDP than Economy A’s households.
C) There is no opportunity cost for economic growth for Economy B at Year 0.
D) There is no opportunity cost of economic growth for Economy A at Year 0.
E) Economy A’s households are consuming a larger percentage of GDP than Economy B’s households.

Answer 20

E

Question 21

Refer to Figure 25-1. Which of the following statements about Economies A and B is correct?
A) Economy A will sustain higher material living standards than Economy B in the long run.
B) Economies A and B will have equal material living standards beginning at Year 0.
C) Economy B will sustain higher material living standards than Economy A in the long run.
D) Economies A and B will have equal material living standards beginning at Year X.
E) Economies A and B will have equal material living standards beginning at Year Y.

Answer 21

C

Question 22

Refer to Figure 25-1. The area marked Area 1 represents
A) the value of consumption from Year 0 to Year X in Economy A.
B) the value of the investment in capital goods undertaken by Economy B.
C) the value of the investment in capital goods undertaken by Economy A.
D) the sacrifice of current consumption by Economy B, as compared to Economy A.
E) the sacrifice of current consumption by Economy A, as compared to Economy B.

Answer 22

D

Question 23

Refer to Figure 25-1. Suppose Economy A jumps to the path of Economy B at Year 0 by increasing the share of GDP that is saved. In that case, which of the following statements about Economy A is true?
A) Economy A will not be able to regain the losses in consumption it incurs by jumping to the path of Economy B.
B) By Year Y, the increase in consumption made possible by the economy’s higher growth rate equals the consumption sacrificed in earlier years.
C) By Year X, Economy A is better off in terms of material living standards for having jumped to the path of Economy B.
D) By jumping to a new growth path at Year 0, Economy A has increased the share of national income that is consumed.
E) By Year X, Economy A is saving and investing the same share of its national income as it would have been had it stayed on its original path.

Answer 23

B

Question 24

Refer to Figure 25-1. Which of the following costs of economic growth are reflected in this diagram?
A) the sacrifice of current consumption
B) lower real interest rate
C) environmental degradation
D) resource exhaustion
E) national saving

Answer 24

A

Question 25

If a country transfers resources from the production of consumption goods to the production of capital goods, the result will be to 
A) raise future consumption.
B) raise current living standards.
C) decrease the long-run growth rate.
D) lower future living standards.
E) raise current consumption.

Answer 25

A

Question 26

One of the benefits of long-run economic growth is
A) growth in nominal GDP greater than real GDP.
B) decreased productive capacity.
C) a greater ability to reduce inequality.
D) increased future interest rates.
E) decreased current saving and increased current consumption.

Answer 26

C

Question 27

The costs of long-run economic growth include:
1) declining future average living standards;
2) that current consumption must be sacrificed to increase investment in capital goods;
3) current increases in investment may only generate greater consumption in the distant future.
A) 1 and 2
B) 2 and 3
C) 1 only
D) 2 only
E) 3 only

Answer 27

B

Question 28

For a given level of technology, a more rapid rate of economic growth can probably be achieved only if a country’s citizens are prepared to
A) redistribute income.
B) sacrifice some present consumption.
C) increase their demand for goods and services.
D) increase exports.
E) decrease interest rates.

Answer 28

B

Question 29

The costs of economic growth include
A) declining future living standards.
B) current saving must be sacrificed to increase investment in capital goods.
C) improvements in technology.
D) the effects on workers whose skills are made obsolete by technical change.
E) reduced interest rates.

Answer 29

D

Question 30

Long-run economic growth can help alleviate the problems of poverty by
A) creating new low-paying jobs for the unemployed.
B) generating more resources that can be used to reduce income inequality.
C) reallocating income away from low-value production to increase the incentives for high-value production.
D) requiring increased saving on the part of most of the population.
E) increasing future consumption for the middle class.

Answer 30

B

Question 31

Long-term economic growth
A) is achieved only by changes in factor-utilization rates.
B) alleviates all poverty.
C) can improve average material living standards.
D) is the result of expansionary fiscal policy.
E) leads to equal income distribution.

Answer 31

C

Question 32

Consuming fewer goods today in order to invest resources in capital goods can be considered the \_\_\_\_\_\_\_\_ of economic growth.
A) opportunity cost
B) social cost
C) investment cost
D) external cost
E) total cost

Answer 32

A

Question 33

Alleviation of poverty is more achievable in a growing economy mainly because
A) individuals are more likely to object to the redistribution of income when they earn more.
B) everyone, including the poor, benefits equally from growth.
C) poor individuals are relatively easier to be identified in a growing economy.
D) nobody has to be made worse off when the increment to income caused by growth is redistributed.
E) wage rates for low-income people are naturally rising.

Answer 33

D

Question 34

An important social cost of economic growth is
A) the increasing inequality of income that usually accompanies sustained growth.
B) the sacrifice of current consumption required for a higher level of future consumption.
C) the associated inflation.
D) the associated frictional unemployment.
E) the destruction of jobs due to labour skills of certain workers becoming obsolete.

Answer 34

E

Question 35

Economic growth is often associated with structural change in the economy, and this change can present difficult policy challenges to governments. Which of the following government policies would be most useful at addressing the social costs of economic growth?
A) expansionary monetary policy
B) the imposition of trade restrictions to protect Canadian jobs
C) subsidies directed at Canadian manufacturing firms
D) worker re-training and education programs
E) reducing income taxes

Answer 35

D