Queens College, CUNY - ECON 201

CHAPTER 3: An Overview of Long-Run Economic Growth

MULTIPLE CHOICE

1)Economic growth can be useful in describing why:

1. 1. Europeans are better off in 2007 than they were in 1907 and why Europeans are better off than Thais
   2. Europeans are better off in 2007 than they were in 1907 and why Europeans are worse off than Thais
   3. Europeans are better off in 2007 than they were in 1907
   4. Europeans are worse off than Thais
   5. Europeans are worse off in 2007 than they were in 1907 and why Europeans are better off than Thais

2. What country or countries do the following characteristics possibly describe?

• Life expectancy at birth is under 50 years.
• More than 90 percent of households do not have electricity.
• Fewer than 10 percent of young adults have graduated from high school.
  1. Kenya                                                      d. Russia
  2. the United States in the late 1800s        e.   All of these answers are correct.
  3. Bangladesh

3. According to historical data, the wages in ancient Greece and Rome were    in sixteenth- century Britain or eighteenth-century France.
   1. somewhat lower than                             d. about the same as
   2. a lot higher than                                     e.   None of these answers are correct.
   3. a lot lower than

4. If the 130,000-year period since anatomically modern humans made their first appearance were compressed into a single day, economic growth would have begun in the last           .
   1. three hours                                             d. half hour
   2. hour                                                         e.   two hours
   3. three minutes

5. English philosopher Thomas Hobbes is notable for observing that life was       for thousands of years.
   1. nasty, brutish, and short                         d. halcyon, fulsome, but short
   2. just like the legend of King Arthur          e.   comfortable and prosperous
   3. great, if you were a king

6. The era of modern economic growth began about:
   1. the time of the Egyptian pharaohs         d. the time of the Renaissance
   2. 500 years ago                                         e.   300 years ago
   3. the time of Caesar

7. The birthplace of modern economic growth was in         during the               century.
   1. Japan; mid-twentieth                              d. China; late twentieth
   2. the United States; mid-nineteenth         e.   Germany; early nineteenth
   3. the United Kingdom; mid-eighteenth

8. Developed countries’ average incomes rose from about        in 1700 to about              today. $1,000; $30,000                                           d. $500; $45,000

   $2,500; $50,000                                         e.   $500; $100,000

c.                                $500; $70,000

9. Until about 12,000 years ago, humans were         ; at that point              led to the first towns and true economic development.
   1. farmers; the Bronze Age
   2. hunters and gatherers; the Iron Age
   3. hunters and gatherers; agriculture
   4. hunters and gatherers; universities
   5. farmers; industry

10. In 2005, prices adjusted for inflation; the U.S. per capita GDP was about       in 1870, and by 2012 it had grown to about                    .

      $500; $37,000                                         d. $10,000; $37,000

   $2,800; $43,000                                         e.   $100; $100,000

c.                                $500; $17,000

11. Assuming the current rate of economic growth continues, the average college student will have a lifetime income   that of his or her parents.

12. Assuming the current rate of economic growth continues, the average parent of a college student will have a lifetime income      that of his or her son or daughter.

13. Economic growth is defined as:
    1. the percent change in per capita income, or GDP
    2. the percent change in prices, or GDP
    3. the decline in the unemployment rate
    4. the difference between the nominal and real GDP
    5. changes in technology

14. The study of economic growth concentrates on understanding the determinants of:
    1. the rate of price changes
    2. the short-term change in per capita GDP
    3. the rate of population growth
    4. the change in per capita GDP over time
    5. None of these answers are correct.

15. Defining per capita GDP in 2013 as y₂₀₁₃ and per capita GDP in 2014 as y₂₀₁₄, the growth rate of per capita GDP, , from 2013 to 2014 is given by:

                                                                          d.

                                                                      e.

c.

16. If per capita GDP in 2014 was $1,000 and in 2015 was $1,200, the growth rate of per capita GDP was:
    1. 1.2 percent                                              d. 120 percent
    2. about 17 percent                                    e.   Not enough information is given.
    3. 20 percent

17. If per capita GDP in 2013 was $900, in 2014 was $1,000, and in 2015 was $1,200, the growth rate of per capita GDP between 2013 and 2015 was:
    1. 25 percent                                               d. about 133 percent
    2. about 11 percent                                    e.   about 33 percent
    3. 20 percent

18. The growth rate of any variable y between periods t and t + 1 is the     and is given by the term

               .

1. 1. percentage of that variable;
   2. percent change in that variable;
   3. percent change in that variable;
   4. percent of that variable;
   5. percent change in that variable;

19. According to the constant growth rate rule, if a variable starts at some initial value y₀ at t = 0 and grows at                     at a constant rate then the value of the variable in three periods is given by:

                                                                           d.

                                e.

c.                               

20. The rule of 70 states that:
    1. if y_t grows at a rate of g percent per year, then the number of years it takes y_t to double is approximately equal to 70/g
    2. if y_t grows at a rate of g percent per year, then the number of years it takes y_t to double is exactly equal to 70/g
    3. if y_t grows at a rate of g percent per year, then the number of years it takes y_t to double is approximately equal to g/70
    4. if y_t grows at a rate of g percent per year, then the number of years it takes y_t to triple is approximately equal to 70/g
    5. if y_t grows at a rate of g percent per year, then the number of years it takes y_t to double is approximately equal to 70/(1 + g)

21. According to the rule of 70, if an economy averages a 4 percent growth rate, it will take about

                years to double in size.

      2.8                                                           d. 5.7

   1,750                                                          e.   17.5

c.                                0.06

22. If instead of labeling the vertical axis in the usual “1, 2, 3, 4,          ” fashion we label it as “1, 2,

4, 8,.... ” so that equal intervals represent a doubling, we call this:

1. 1. the quadratic scale                                 d. the ratio scale
   2. the logarithmic scale                              e.   the geometric scale
   3. the exponential scale

23. If we compress the vertical axis at “key doubling points,” we call this:

1. 1. the logarithmic scale                              d. the quadratic scale
   2. the ratio scale                                         e.   the geometric scale
   3. the exponential scale

24. The compression of the vertical axis at “key doubling points” is called:
    1. the quadratic scale                                 d. the ratio scale
    2. the logarithmic scale                              e.   the geometric scale
    3. the exponential scale

25. Over the past 50 years, Brazil’s population growth rate has averaged about 2.3 percent. According to the rule of 70, Brazil’s population will double in about:
    1. 3 years                                                    d. 161 years
    2. 30 years                                                  e.   1.6 years
    3. 33 years

                                 C.

26. Between 1970 and 1976, Israel’s average inflation rate was about 65 percent per year. With that rate of inflation, prices would double about every    using the rule of 70.
    1. 93 years                                                  d.   1.1 years
    2. 107.7 years                                             e.   9.3 years
    3. 0.95 years

27. If the population of Romania was about 20.3 million in 1970 and the average population growth rate is

0.2 percent, then Romania’s population would have been about      in 2010.

28. If the population of Romania was about 22 million in 2010 and the average population growth rate is

0.2 percent, then Romania’s “initial” population was about       in 1970.

1. 23.9 million                                             d.   22.0 million
2. 18.9 million                                             e.   23.8 million
3. 20.3 million

29. Suppose there are L₀ people in the world today. If the population growth rate equals , then in 50 years, the world population will be:

                                                                                d.

                                                                      e.

c.

30. Suppose population growth is given by                   , where L₀ is the population today,        is the population in t periods, and                                    is the population constant growth rate. If we do not know what value

takes but do know the values of L₀,                                       , and t, we can calculate          by punching                                         into our calculator.

1. 1. d.

1. 2. e.  

c.

31. The president of the World Bank has asked you to calculate the average population growth rate of Hungary from 1970 to 2010. You know the population in 1970 was about 10.4 million and in 2010 about 9.5 million. The average growth rate is about:
    1. 0.2 percent                                              d. 2.7 percent
    2. ?0.2 percent                                               e.   ?200 percent
    3. 98.4 percent

32. The president of the World Bank is on his way to a meeting with the president of Uruguay. He bumps into you in the hallway and wants to know how long it will take for Uruguayan per capita GDP to double. All he knows is that the average growth rate has been about 1 percent. You quickly tell him it will take about                                                  years because you know   .
    1. 60; the rule of 60                                    d. 70; the rule of 70
    2. 7; the rule of 70                                      e.   1; exponential growth
    3. 700; percent change

33. The president of the World Bank has asked you to calculate the average per capita GDP growth rate of Rwanda from 1980 to 2010. In 1980, per capita GDP was about $728 and in 2010 about $1,025. You tell him the average growth rate of per capita GDP is about:
    1. 1.1 percent                                              d. ?2.3 percent
    2. ?1.1 percent                                               e.   20.2 percent
    3. 0.0 percent

34. The president of the World Bank has asked you to calculate the average population growth rate of Nigeria from 1960 to 2010. You know the population in 1960 was about 42 million and in 2010 about 152 million. The average growth rate is about:
    1. 16.4 percent                                            d. ?4.1 percent
    2. 0.9 percent                                              e.   2.6 percent
    3. 0.0 percent

35. In the late nineteenth century,           was the richest country in the world, but it now lags behind the United States because of           .
    1. China; a lower rate of inflation
    2. the United Kingdom; a lower economic growth rate
    3. Germany; a higher economic growth rate
    4. Japan; consistently being at war
    5. China; a higher economic growth rate

36. Suppose that in 1960 Japan had an initial per capita GDP of $12,000 per year and China had a per capita GDP of $5,000. But China is growing at 5 percent per year and Japan is growing at 3 percent per year.  is richer in 2010 with a per capita GDP of approximately        .

37. Suppose that in 1950 Japan has an initial per capita GDP of $15,000 per year and China has a per capita GDP of $2,500. But China is growing at 7 percent per year and Japan is growing at 2 percent per year. In 2010, is the lower-income country, with a per capita GDP of approximately

               .

      China; $2,500                                          d. China; $46,000

   Japan; $15,000                                          e.   Japan; $105,000

c.                                Japan; $50,000

38. Since approximately 1950,             has been one of the fastest growing economies.
    1. Germany                                                 d. the United States
    2. the United Kingdom                                e.   Mexico
    3. China

39. Of the industrialized countries in 2010,           had the highest per capita GDP, and in 1950,

                had the lowest per capita GDP.

1. 1. Japan; the United Kingdom
   2. the United States; China
   3. Germany; Germany

1. 4. the United Kingdom; Germany
   5. the United Kingdom; the United States

40. Between 1986 and 2010, China’s per capita GDP grew an average of       percent. 4.4 d. 7

   8                                                                 e.   6

c.                                3.7

41. When a lower-income economy’s GDP is able to “catch up” with a higher-income economy’s GDP, this behavior is related to an important concept in the study of economic:
    1. growth                                                     d. fluctuations
    2. divergence                                              e.   asset markets
    3. convergence

42. If France’s per capita GDP is $5,000 in 1950 and Portugal’s is $2,500, but Portugal is growing faster, the expectation that sometime in the future Portugal’s per capita GDP will equal that of France is called economic:
    1. growth                                                     d. dynamics
    2. divergence                                              e.   justice
    3. convergence

43. In 2010, which of the following had a per capita GDP higher than the United States?

44. Which of the following had a negative growth rate over the past 50 years?
    1. Tanzania                                                  d. Democratic Republic of Congo
    2. Ethiopia                                                   e.   All of these answers are correct.
    3. Burundi

45. Between 1960 and 2000, which of the following countries was among the slowest growing?

46. Between 1960 and 2000, which of the following countries was among the fastest growing?
    1. Niger                                                       d. Venezuela
    2. Nicaragua                                               e.   None of these answers are correct.
    3. Madagascar

47. In 1960, approximately             of the world’s population lived on less than $5 per day; by 2000, it

                to                of the population.

1. 1. 10 percent; rose; over one-third
   2. 10 percent; rose; over two-thirds
   3. two-thirds; fell; less than 10 percent
   4. one-third; fell; less than 1 percent
   5. one-third; rose; over two-thirds

48. In 1960, approximately             of the world’s population lived on less than $5 per day, and the rate has                steadily since.
    1. 10 percent; fallen                                   d.   one-third; fallen
    2. two-thirds; fallen                                    e.   two-thirds; risen
    3. 10 percent; risen

49. In 2010, approximate             of the world’s population lived on $5 a day or less.
    1. one-twelfth                                             d. one-third
    2. two-thirds                                                e.   12 percent
    3. 10 percent

50. Between 1960 and 2010, the fraction of the world’s population that lived on $5 a day or less

               . This can be attributed to, in part,          .

1. 1. fell; a shrinking global population
   2. stayed about the same; global warming
   3. fell; economic growth in China and India
   4. rose; rising oil prices
   5. rose; the financial crisis

51. 
    Suppose k, l, and m grow at constant rates given by   and      What is the growth rate of y if

                                                                       d.

                  e.  

c.

52. Suppose k, l, and m grow at constant rates given by   and      What is the growth rate of y if

c.  

d.

e.

53. Suppose k, l, and A grow at constant rates given by    and       What is the growth rate of y if

                     e.  

c.

54. 
    Suppose k and l grow at constant rates given by         and    What is the growth rate of y if

                                              d.

                               e. 

c.                               

55. Suppose K and L grow at constant rates given by          and                                                   What is the growth rate of y if                                                ?

                                                                          d.

                              e. 

c.

56. Suppose k₀ = 100 and assume it grows at a constant rate   percent per year. If             what is the approximate value of y in 50 years?

                                                                       d.

                                     e.  Not enough information is given.

c.                               

57. 
    Suppose k, l, and A grow at constant rates given by    and       What is the growth rate of y if

                                           d.

                          e. 

c.                               

58. 
    Suppose k, l, and A grow at constant rates given by    and     .What is the growth rate of y if

                                         d.

                          e. 

c.                               

59. Suppose x grows at a rate       percent and y grows at a rate       percent. If z = y ? x, then z

grows at              ; if z = x/y, z grows at             .

1. 1. 7 percent; ?17 percent                                 d. 60 percent; 42 percent
   2. ?17 percent; 7 percent                                 e.   60 percent; ?42 percent
   3. 17 percent; ?7 percent

60. Suppose x grows at a rate       percent and y grows at a rate     percent. If z = x ? y, then z grows at       ; if z = x/y, z grows at                      .
    1. 0 percent; 6 percent                               d. ?6 percent; 6 percent
    2. 6 percent; 0 percent                               e.   1 percent; 0 percent
    3. 6 percent; 12 percent

61. Suppose k grows at a rate       percent and l grows at a rate       percent. If                  then y

grows at:

1. 1. 5 percent                                                 d. 4 percent

1. 2. 15 percent                                               e.   3 percent
   3. 9 percent

62. Suppose k grows at a rate       percent and l grows at a rate     percent. If                then y

grows at:

63. Suppose k grows at a rate       percent and l grows at a rate     percent. If                  then y

grows at:

1. 1. 6 percent                                                 d. ?6 percent
   2. 5 percent                                                 e.   12 percent
   3. 7 percent

64. Suppose k grows at a rate       percent and l grows at a rate     percent. If                  then y

grows at:

1. 1. 3 percent                                                 d.   12 percent
   2. 4 percent                                                 e.   ?4 percent
   3. ?3 percent

65. Assume that both Japan’s and the United States’ average annual per capita GDP growth rates are 2 percent per year, and both countries began with an initial per capita GDP of $1,000. However, the United States has been growing since 1910 and Japan only since 1960. In 2010, the United States would have been    than Japan.
    1. 0.37 times poorer                                   d. 4,555 times richer
    2. 99 times richer                                       e.   0.269 times poorer
    3. 2.69 times richer

66. Assume that both Mexico’s and Argentina’s average annual per capita GDP growth rates are 3 percent per year, and both countries began with an initial per capita GDP of $1,000. However, Argentina has been growing since 1935 and Mexico only since 1960. In 2010, Mexico’s per capita GDP would have been about                                                                 , while Argentina’s would have been about             .

      $19.42; $12.94                                        d. $48,544; $72,816

   $9,179; $4,384                                           e.   $4,384; $9,179

c.                                $51,500; $77,250

67. Assume that Mexico’s average annual per capita GDP growth rate is 3 percent per year, while Argentina’s is 2.5 percent. Next, assume that both countries began with an initial per capita GDP of

$1,000 in 1960. By 2010, per capita GDP would have been         in Mexico and               in Argentin

68. Which of the following is/are the benefit(s) of economic growth?
    1. increases in life expectancy
    2. reductions in infant mortality
    3. higher incomes
    4. an expansion in the range of goods and services available
    5. All of these answers are correct.

69. Which of the following is/are the benefit(s) of economic growth?
    1. an expansion in the range of goods and services available
    2. shorter expected lifespans
    3. more pollution
    4. lower government deficits
    5. lower productivity

70. The costs of economic growth include which of the following?
    1. pollution and the depletion of natural resources
    2. global warming
    3. increased income inequality
    4. technological advances, which may lead to the loss of specific jobs and industries
    5. All of these answers are correct.

71. The costs of economic growth include which of the following?
    1. pollution and the depletion of natural resources
    2. global cooling
    3. the gradual release of individuals from physical labor
    4. increased productivity
    5. longer lifespans

72. Despite the costs associated with economic growth, most believe:
    1. they will get only higher                         d. the benefits far outweigh the costs

1. 2. there are not too many benefits            e.   the benefits are negative
   3. they are higher than the benefits

73. The relationship between pollution and per capita GDP is documented as:
    1. U shaped                                                 d. nonexistent
    2. an inverse U                                            e.   negatively related
    3. positively related

74. In dynamic economies, it is true that economic growth may contribute to    , but it also leads to

               .

1. 1. unemployment; inflation                        d. crime; unemployment
   2. job creation; job destruction                  e.   pollution; price instability
   3. job destruction; job creation

TRUE/FALSE

1. According to historical data, wages in ancient Greece and Rome were about the same as wages in fifteenth-century Britain.

2. The “birthplace” of modern economic growth was the mid-nineteenth-century United States.

3. Economic growth is defined as the percent change in per capita income or GDP.

4. If the 130,000-year period since anatomically modern humans made their first appearance were compressed into a single day, economic growth would have begun in the last three minutes.

5. One of the nice properties of the rule of 70 is that it simply approximates how long it takes for a variable to double independent of the level of the variable.

6. Suppose there are L₀ people in the world today. If the population growth rate equals       then in 50 years, the world population will be                   .

7. One of the nice properties of the rule of 70 is that it simply approximates how long it will take for a variable to double, but it is dependent on the level of the variable.

8. Defining per capita GDP in 2014 as      and per capita GDP in 2015 as      the growth rate of per capita GDP,   from 2014 to 2015 is given by                                  .

9. The growth rate of any variable y between periods t and t + 1 is the percent change in that variable, given by       .

10. When a lower-income economy’s GDP is able to “catch up” with a higher-income economy’s GDP, this behavior is related to an important concept called economic convergence.

11. If x grows at 3 percent and y grows at ?2 percent and w = x/y, then w grows at 5 percent.

12. If x grows at 3 percent and y grows at ?2 percent and w = x/y, then w grows at 1 percent.

13. Define                  . If                and               then

14. Define                    . If              ,              , and if             , then

15. Let                      If                               and if               then

16. Suppose k, l, and A grow at constant rates given by    and       The growth rate of y if              is

17. Suppose k, l, and A grow at constant rates given by    and      The growth rate of y if is

18. Suppose k and l grow at constant rates given by         and                                               and A is a constant. If                                                         the growth rate of y is

19. A benefit of economic growth is the expansion in the variety of goods and services available to individuals.

20. A benefit of economic growth is increased resource depletion.

21. Each of the following is a benefit of economic growth:
    1. an expansion in the range of goods and services available for purchase
    2. reductions in infant mortality
    3. increased income inequality

22. Each of the following is a benefit of economic growth:
    1. loss of jobs in some sectors
    2. pollution
    3. increased income inequality