Rensselaer Polytechnic Institute

ACCT ACCT 3371

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

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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
  2. the United States in late 1800s
  3. Bangladesh
  4. Russia
  5. a, b, and c.

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
   2. a lot higher than
   3. a lot lower than

1. 4. about the same as
   5. None of the above.

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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
   2. hour
   3. three minutes
   4. half hour
   5. two hours

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5. The era of modern economic growth began about
   1. the time of the Egyptian Pharaohs.
   2. 500 years ago.
   3. the time of Caesar.
   4. the time of the Renaissance.
   5. 300 years ago.

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6. The birthplace of modern economic growth was in

                  during the              century.

1. 1. Japan; mid-twentieth
   2. the United States; mid-nineteenth
   3. the United Kingdom; mid-eighteenth
   4. China; late twentieth
   5. Germany; early nineteenth

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7. Developed countries’ average incomes rose from about

                  in 1700 to about             today. a. $100; $30,000

b. $2,500; $70,000

c. $500; $70,000

d. $500; $30,000

e. $500; $100,000

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8. Until about 12,000 years ago, humans were

                 ; at that point             led to the first towns and true economic development.

1. 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

9 Economic growth is defined as

1. 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.

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10. Economic growth concentrates on understanding the determinants of
    6. the rate of price changes.
    7. the short-term change in per capita GDP.
    8. the rate of population growth.
    1. the long-term change in per capita GDP.
    10. None of the above.

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11. In 2000 prices adjusted for inflation, the U.S. per capita GDP was about      in 1870, and by 2004 it had grown to about                  .

a. $500; $37,000

b. $2,500; $37,000

c. $500; $17,000

d. $10,000; $11,000

e. $100; $100,000

12. Assuming the current rate of economic growth continues, the average college student will have a lifetime income            that of his or her parents.
    1. five times
    2. 10 times
    3. about the same as
    4. about twice
    5. half

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13. 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.
    1. 10 times
    2. half
    3. about the same as
    4. five times
    5. about twice

14. If per capita GDP in 2004 was $1000 and in 2005 was

$1200, the growth rate of per capita GDP was

1. 1. 1.2 percent.
   2. about 17 percent.
   3. 20 percent.
   4. 120 percent.
   5. Not enough information is given.

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15. If per capita GDP in 2003 was $900, in 2004 was

$1000, and in 2005 was $1200, the growth rate of per capita GDP between 2003 and 2005 was

1. 1. 25 percent.
   2. about 11 percent.
   3. 20 percent.
   4. about 133 percent.
   5. about 33 percent.

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16. 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; y_t+1/y_t
   2. percentage change in that variable; (y_t+1 – y_t)/y_t
   3. percentage change in that variable; y_t+1 – y_t
   4. percentage of that variable; (y_t+1 – y_t)/y_t
   5. percentage change in that variable; (y_t+1 – y_t)/y_t+1

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

a. y₃ = y₀(1 – g¯)3.

b. y_t = y₀(1 + g¯)t.

c. y₃ = y₀(1 + g¯)3.

d. y₃ = y₀(1 + 3 gg¯).

e. y₃ = 3y₀(1 + g¯).

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18. 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).

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19. 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. the quadratic scale.
    2. the logarithmic scale.
    3. the exponential scale.
    4. the ratio scale.
    5. the geometric scale.

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20. If we compress the vertical axis at “key doubling points,” we call this
    1. the logarithmic scale.
    2. the ratio scale.
    3. the exponential scale.
    4. the quadratic scale.
    5. the geometric scale.

21. The compression of the vertical axis at “key doubling points” is called
    1. the quadratic scale.
    2. the logarithmic scale.
    3. the exponential scale.
    4. the ratio scale.
    5. the geometric scale.

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22. According to the rule of 70, if an economy averages 4 percent growth rate, it will take about            years to double in size.

a. 2.8

b. 1750

c. 0.06

d. 5.7

e. 17.5

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23. Over the past 50 years, Brazil’s population growth rate has average about 2.3 percent. According to the rule of 70, Brazil’s population will double in about
    1. three years.
    2. 30 years.
    3. 33 years.
    4. 161 years.
    5. 1.6 years.

24. 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
    2. 107.7 years
    3. 0.95 years
    4. 1.1 years
    5. 9.3 years

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25. If the population of Romania was about 18.4 million in 1960 and the average population growth rate is 0.5 percent, then Romania’s population would have been about  in 2000.
    1. 129.5 million
    2. 22.4 million
    3. 23.6 million
    4. 21.4 million
    5. 15.8 million

26. If the population of Romania was about 22.5 million in 2000 and the average population growth rate is 0.5 percent, then Romania’s “initial” population was about

                  in 1960.

1. 1. 23.6 million
   2. 22.5 million
   3. 18.4 million
   4. 21.4 million
   5. 15.8 million

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

a. L₅₀ = L₀n¯ ⁵⁰.

b. L₅₀ = L₀(1 + n¯)–50.

28 The president of the World Bank has asked you to calculate the average population growth rate of Hungary from 1970 to 2004. You know the population in 1970 was about 10.4 million and in 2004 about 10.1 million. The average growth rate is about

1. 1. 0.09 percent.
   2. –0.09 percent.
   3. 0.08 percent.
   4. –63.0 percent.
   5. 36 percent.

28. 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. 1. 60; the rule of 60
   2. 7; the rule of 70
   3. 700; percentage change
   4. 70; the rule of 70
   5. 1; exponential growth

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29. The president of the World Bank has asked you to

c. L

= L  ∑50

(1 + n)^t .

calculate the average per capita GDP growth rate of

50    0

t=0

Rwanda from 1980 to 2000. In 1980, per capita GDP

d. L₅₀ = L₀(1 + n¯) ? 50.

e. L₅₀ = L₀(1 + n¯)50.

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30. Suppose population growth is given by L_t = L₀(1 + n¯)t , where L₀ is the population today, L_t is the population in t periods, and n¯ is the population constant growth rate. If we do not know what value n¯ takes but do know the values of L₀, L_t, and t, we can calculate n¯ by punching

                  into our calculator.

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31 was about $1255 and in 2000 about $1018. You tell him the average growth rate of per capita GDP is about

1. 1.0 percent.
2. –1.0 percent.
3. 99 percent.
4. –19.0 percent.
5. –99 percent.

32. The president of the World Bank has asked you to calculate the average population growth rate of Nigeria from 1960 to 2004. You know the population in 1960 is about 40 million and in 2004 about 137 million. The average growth rate is about
    1. –1.0 percent.
    2. 103.0 percent.
    3. 100.0 percent.
    4. –3.0 percent.
    5. 3.0 percent.

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33. 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

34. Suppose that, in 1950, Japan had an initial per capita GDP of $12,000 per year and China had a per capita GDP of $5,000 in the same year. But China is growing at 5 percent per year and Japan is growing at 2 percent per year.                      is richer in 2000 with a per capita GDP of approximately .

a. Japan; $32,299

b. Japan; $57,337

c. China; $57,337

d. China; $137,608

e. Not enough information is given.

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35. 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 in the same year. But China is growing at 7 percent per year and Japan is growing at 2 percent per year. In 2005,    is the lower-income country, with a per capita GDP of approximately

                 .

a. China; $73,642

b. China; $40,374

c. Japan; $40,374

d. China; $6,729

e. Japan; $73,642

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2. Japan; Japan
3. Germany; Germany
4. the United Kingdom; Germany
5. the United Kingdom; Japan

36. 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
    2. divergence
    3. convergence
    4. fluctuations
    5. asset markets

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37. If France’s per capita GDP is $5000 in 1950 and Portugal’s is $2500, but Portugal is growing faster, the expectation that by some time in the future Portugal’s per capita GDP will equal that of France is called economic
    1. growth.
    2. divergence.
    3. convergence.
    4. fluctuations.
    5. asset markets.

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