Core Economics 3e

Economic Growth

Multiple Choice Questions

After watching the video lectureEconomic Growth, consider the question below. Then “submit” your response.

Question

1. The benefits of economic growth in a country include a(n):

reduction in the life expectancy of the country’s population.

increase in the birth rate in the country.

better standard of living for the country’s citizens.

decrease in the foreign investment to the country.

Question

2. Economic growth is normally measured by the growth in a country’s:

labor force.

physical capital.

real GDP.

net exports.

Question

3. The rule of 70 estimates the:

number of years it takes a value to double given a variable growth rate.

number of years it takes a value to double given a consistent growth rate.

number of years it takes a value to triple given a variable growth rate.

number of years it takes a value to triple given a consistent growth rate.

Question

4. Economic growth allows countries to:

enhance the country’s reputation as a good place to live.

provide citizens with less need to work as wealth is redistributed.

reduce their reliance on good education due to growth in wealth.

invest for the future, providing the basis for additional growth.

Question

5. Over time, small differences in economic growth can lead to large differences in wealth because of the:

power of compounding.

power of linear growth.

rule of 70.

differences in the value of currency among different nations.

Question

6. The catch-up effect, which explains why developing economies can grow faster than developed economies, is based on the fact that:

birth rates are higher in developing countries and thus the labor force is also larger than in developed countries.

stock of physical capital is higher in developing countries in comparison to developed countries.

adoption of existing technologies can have a dramatic effect in accelerating in less developed economies; on the other hand, more advanced economies have already realized the benefits of these technologies.

developing countries tend to have a more stable ruling government than developed countries and this helps the former to sustain growth in the long run.

Question

7. Improvements in factors of production can lead countries to attain a higher rate of economic growth. Such factors include:

land, capital, labor, and the government.

land, labor, capital, and entrepreneurship.

labor, capital, defense services, and entrepreneurship.

natural resources, defense services, government, and entrepreneurship.

True/False Questions

After watching the video lecture Economic Growth, consider the question below. Then “submit” your response.

Question

1. The Rule of 70 measures how long it takes for a value to triple.

True

False

Question

2. As economies grow in size, it is easier to grow at a high rate.

True

False

Question

3. An economy with extensive natural resources that are easy to exploit and are marketable has an asset that is useful in achieving higher rates of growth.

True

False

Short Answer/Discussion Questions

After watching the video lecture Economic Growth, consider the question below. Then “submit” your response.

Question

1. Why is economic growth important?

Suggested solution: Economic growth is important because it can result in the growth of wealth for a country. Such wealth can be translated into (1) a better standard of living for citizens (everybody, rich and the poor, benefits), (2) better health and longevity (more spending on health care, better working conditions and a clean environment) and (3) savings that can be invested to sustain future growth (education, capital and technology, and infrastructure). (Answers may vary.)

Question

2. How does economic growth contribute to better health and higher life expectancy for the citizens of a country that is experiencing growth?

Suggested solution: Economic growth creates wealth for countries (resources in excess of current needs) and some of this wealth can be used to finance better health care, safer and better working conditions, and the ability to invest in a cleaner and safer environment. (Answers may vary.)

Question

3. What role does capital play in achieving high rates of growth?

Suggested solution: Capital in the form of technology, equipment and machinery can improve the productivity of a country’s workforce. An increase in productivity implies that more can be produced with a given amount of labor. This accelerates economic growth and wealth creation. (Answers may vary)

Question

4. Explain how small differences in growth rates can lead to large differences in wealth.

Suggested solution: The principle of compounding and the passage of time can result in small differences in growth rates yielding significant differences in wealth. For example, if two countries have the same wealth at the start of a 100 year period, a 1% difference in growth rate over the period will result in the faster growing country being 3 times richer than the slower growing country over the 100 years. (Answers may vary.)