Homework Chapter 8

PRINCIPLES OF MACROECONOMICS INSTRUCTOR: NGUYEN VIET HOA (0378418749)
CHAPTER 8: ECONOMIC GROWTH

1. A reasonable measure of the standard of living in a country is
A. real GDP per person.
B. nominal GDP per person.
C. real GDP.
D. the growth rate of nominal GDP per person.
2. A rapid increase in the number of workers, other things the same, is likely in the short
term to
A. raise real GDP per person, but decrease real GDP.
B. decrease both real GDP and real GDP per person.
C. raise both real GDP and real GDP per person.
D. raise real GDP, but decrease real GDP per person.
3. If, in some European country, real GDP/person in 2004 is €18,073 and real GDP/person
in 2005 is €18,635, what is the growth rate of real output per person over this period?
A. 3.1 percent
B. 18.6 percent
C. 5.62 percent
D. None of the above
4. A country has real GDP of 700 billion VND and average growth rate of 5%/year.
Within 2 years, real GDP of that country will increase by
A. 14 billion VND
B. 35 billion VND
C. 70 billion VND
D. 71,75 billion VND
5. A country’s economic growth rate is 5%/year. According to the rule of 70, after how
many years will GDP grow by 4 times?
A. 14 years
B. 20 years
C. 28 years
D. 40 years
6. If a country has the average growth rate of 2% per year then after 70 years, real GDP
will increase by
A. 2 times C. 6 times
B. 4 times D. 8 times
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7. According to the rule of 70, over the past century in the United States, average income
as measured by real GDP per person has grown about
A. 3 percent per year, which implies a doubling about every 20 years.
B. 2 percent per year, which implies a doubling about every 35 years.
C. 4 percent per year, which implies a doubling about every 30 years.
D. none of the above are correct.
8. According to the rule of 70, if a country has real GDP of 5000 billion USD and the
average economic growth rate of 3.5%/year,
A. After 20 years, that country's real GDP is 9949 billion USD
B. After 20 years, that country's real GDP is 10000 billion USD
C. After 35 years, that country's real GDP will be doubled
D. After 70 years, that country's real GDP will be doubled
9. According to rule 70, a country has a GDP per capita’s growth rate of
A. 3.5%/year means that the standard of living will be doubled after 25 years
B. 3%/year means that the standard of living will be doubled after 20 years
C. 2.5%/year means that the standard of living will be doubled after 30 years
D. 2%/year means that the standard of living will be doubled after 35 years
10. Which of the following is true?
A. Although levels of real GDP per person vary substantially from country to country, the
growth rate of real GDP per person is similar across countries.
B. Productivity is not closely linked to government policies.
C. The level of real GDP per person is a good gauge of economic prosperity, and the growth
rate of real GDP per person is a good gauge of economic progress.
D. Productivity may be measured by the growth rate of real GDP per person.
11. A nation's standard of living is determined by
A. its productivity.
B. its gross domestic product.
C. its national income.
D. how much it has relative to others.
12. Which of the following is a correct way to measure productivity?
A. divide the number of hours worked by output
B. divide output by the number of hours worked
C. compute output growth
D. divide the change in output by the change in number of hours worked
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13. Which of the following is considered human capital?

A. knowledge acquired from early childhood education programs
B. knowledge acquired from grade school
C. knowledge acquired from on-the-job training
D. All of the above are correct
14. Which of the following is considered human capital?
A. the comfortable chair in your dorm room where you read economics texts
B. the amount you get paid each week to work at the library
C. the things you have learned this semester
D. any capital goods that require a human to be present to operate
15. Technological knowledge refers to
A. human capital.
B. available information on how to produce things.
C. resources expended transmitting society's understanding to the labor force.
D. All of the above are technological knowledge.
16. Suppose Japanese-based Sony Corporation builds and operates a new chip factory in
the United States. Future production from such an investment would
A. increase U.S. GNP more than it would increase U.S. GDP.
B. increase U.S. GDP more than it would increase U.S. GNP.
C. not affect U.S. GNP, but would increase U.S. GDP.
D. have no affect on U.S. GNP or GDP.
17. Real GDP per person
A. minus real GDP per person from the previous period equals the growth rate of real GDP
per person.
B. provides more meaningful comparisons across time and countries than real GDP.
C. is population divided by GDP.
D. All of the above are correct.
18. The opportunity cost of growth is
A. a reduction in current investment.
B. a reduction in current saving.
C. a reduction in current consumption.
D. a reduction in taxes.
19. Our standard of living is most closely related to
A. how hard we work.
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B. our supply of capital, because everything of value is produced by machinery.

C. our supply of natural resources, because they limit production.
D. our productivity, because our income is equal to what we produce.
20. Which of the following is an example of foreign direct investment?
A. General Motors buys steel from South Korea.
B. General Motors of the USA buys shares in Saab of Sweden.
C. McDonald's builds a restaurant in Moscow.
D. UK publisher Bloomsbury sells the rights to make a film of a Harry Potter book to an
American film studio.
21. If Toyota builds a new plant in the north of England,
A. there has been an increase in foreign portfolio investment in the UK.
B. once the plant starts producing cars UK GDP will rise less than UK GNP.
C. once the plant starts producing cars UK GDP and GNP will both fall because some
income from this investment will accrue to foreigners.
D. once the plant starts producing cars UK GDP will rise more than UK GNP.
22. To increase growth, governments should do all of the following except
A. encourage foreigners to investment in your country.
B. encourage saving and investment.
C. nationalize major industries.
D. encourage research and development.
E. promote free trade.
23. In the 1800s, Europeans purchased stock in American companies that used the funds
to build railroads and factories. The Europeans made
A. foreign direct investments.
B. foreign indirect investments.
C. foreign portfolio investments.
D. indirect domestic investments.
24. Investment from abroad
A. is a way for poor countries to learn the state-of-the-art technologies developed and used
in richer countries.
B. is encouraged by economists.
C. often requires removing restrictions that governments have imposed on foreign
ownership of domestic capital.
D. All of the above are correct.
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PART 2: EXERCISES
Exercise 1:
a) Vietnam's GDP in 2008 was 80 billion USD. The average growth rate in the next 5 years is
expected to be 5%/year. Calculate Vietnam's GDP in 2013.
b) Vietnam’s GDP per capita in 2000 and 2010 were 500 USD and 1000 USD respectively.
Calculate Vietnam’s average growth rate over the period of 2000-2010.
c) Vietnam’s real GDP per capita in 2013 was 500 USD. According to the rule of 70, with an
average growth rate of 8%/year, after how many years will real GDP per capita of Vietnam be
doubled?
Exercise 2: Nominal GDP in 2000 and 2010 of a country were 135 billion USD and 225 billion
USD respectively. GDP deflator in 2000 and 2010 are 90 and 120 respectively. Population in
2000 was 72 million people, in 2010 was 84 million people.
a) Calculate real GDP per capita of that country in 2000 and 2010. The living standard has
increased or decreased during this period?
b) Calculate the average growth rate of real GDP and average growth rate of real GDP per
capita over the period of 2000-2010.
Exercise 3: Assume that country A in the first year has nominal GDP of 200 billion USD, GDP
deflator of 102 and population of 50 million people. In the second year nominal GDP is 280
billion USD, the GDP deflator is 125 and population is 51 million people. Calculate the
economic growth rate in the second year of this country.
Exercise 4: In 2012, country A’s real GDP was 420 billion USD and country B’s real GDP was
150 billion USD. Assume that average growth rate of country A is 2%/year and that of country
B is 3.5%/year.
a) According to the rule of 70, how many years will real GDP of the two countries be doubled?
b) How long does it take for real GDP of country A equal to real GDP of country B?
Exercise 5: Real GDP in the first year of country X is 1250 billion USD, after 5 years is 1500
billion USD. Real GDP in the first year of country Y is 800 billion USD, after 5 years is 1200
billion USD.
a) Calculate the economic growth rate of each country.
b) How long does it take for real GDP of country X equal to real GDP of country Y?
Exercise 6: Real GDP of country A equals to 60% real GDP of country B. Real GDP growth
rate of country A is 3.5%/year while real GDP growth rate of country B is 1%/year. After 10
years, calculate the ratio of country A’s real GDP in comparion with country B’s real GDP?
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Exercise 7: Real GDP of country X equals to 65% real GDP of country Y, the real GDP growth
rate of country X is 4%/year while country Y is 2.5%/year. After 15 years, calculate the ratio
of country X’s real GDP in comparion with country Y’s real GDP?
Exercise 8: Since you were born, you have been inherited 1 billion VND. According to the rule
of 70, how much money will you have after 84 years with an annual average growth rate of
5%/year?
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PRINCIPLES OF MACROECONOMICS INSTRUCTOR: NGUYEN VIET HOA (0378418749)

CHAPTER 8: ECONOMIC GROWTH

13. Which of the following is considered human capital?

B. our supply of capital, because everything of value is produced by machinery.

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