Modern economic growth refers to the rapid, sustained rise in output per person that has occurred over roughly the last two centuries.
Correct Answer
True
True. Sustained growth in living standards is historically recent, beginning with industrialization about two centuries ago. Before then, ordinary people's incomes changed little over long periods.
Category: Modern Economic Growth
Question 2
The Industrial Revolution began in the United States and later spread to Great Britain.
Correct Answer
False
False. The Industrial Revolution began in Great Britain and then spread to the United States, Germany and other countries.
Category: Modern Economic Growth
Question 3
Before the Industrial Revolution, the living standards of ordinary people changed little over many centuries.
Correct Answer
True
True. Some rulers lived in luxury, but for most people incomes stayed close to the same level for centuries. Steady, compounding gains in living standards arrived only with modern economic growth.
Category: Modern Economic Growth
Question 4
Economies of scale are cost disadvantages that firms face as they grow larger.
Correct Answer
False
False. Economies of scale are cost advantages that come from a larger size of production, such as using an industrial oven instead of a home oven. They are one of the sources of higher labor productivity.
Category: Labor Productivity
Question 5
Technological change combines invention, an advance in knowledge, with innovation, putting that advance to use in a product or service.
Correct Answer
True
True. Invention creates new knowledge, and innovation turns that knowledge into new or better goods, services or production methods. Both together make up technological change.
Category: Components of Growth
Question 6
In compound growth, each year's growth rate is applied to a base that already includes the growth of earlier years.
Correct Answer
True
True. Because growth builds on past growth, a steady rate produces larger absolute gains each year. This is why small differences in growth rates create large income differences over decades.
Category: Compound Growth
Question 7
At a steady growth rate of 2 percent per year, GDP doubles in about 10 years.
Correct Answer
False
False. At 2 percent a year, 10 years of growth raises GDP by only about 22 percent, since 1.02^10 is about 1.22. Doubling at 2 percent takes about 35 years.
Category: Compound Growth
Question 8
Capital deepening can come from an increase in either physical capital per worker or human capital per worker.
Correct Answer
True
True. Capital deepening means more capital per person, which can be more or better machines and equipment per worker or more education and skills per worker.
Category: Components of Growth
Question 9
In growth accounting, the part of growth not explained by measured physical and human capital is attributed to population growth.
Correct Answer
False
False. The unexplained part, called the residual, is attributed to technology. U.S. studies typically find this technology residual is a large share of growth.
Category: Growth Accounting
Question 10
A new idea can be used by many workers at the same time at little or no extra cost, unlike a single machine.
Correct Answer
True
True. Once a technology exists, extending its use to more workers costs very little, while a machine or a year of schooling benefits only the person who uses it. This helps explain why technology can keep driving growth.
Category: Convergence
Question 11
Diminishing marginal returns means that each additional unit of capital raises output by more than the unit before it.
Correct Answer
False
False. Diminishing marginal returns means each additional unit of capital, with technology held constant, raises output by less than the unit before it.
Category: Convergence
Question 12
Enforceable contracts make people more willing to agree to exchanges that will be completed in the future.
Correct Answer
True
True. When courts will enforce an agreement, each party can trust that the other will deliver or pay later. Without that protection, people avoid such deals, which makes business harder and slows growth.
Category: Rule of Law
Question 13
Economic growth since the Industrial Revolution has been spread evenly across all countries.
Correct Answer
False
False. Growth has been very uneven. Some economies grew rapidly while others, often those lacking secure property rights and enforceable contracts, remained poor, so income gaps between countries widened for long periods.
Category: Rule of Law
Question 14
The Industrial Revolution took place mainly in the first half of the 1900s.
Correct Answer
False
False. The Industrial Revolution took place mainly in the late 1700s and first half of the 1800s, when the steam engine, power loom and steam locomotive spread.
Category: Modern Economic Growth
Question 15
The advantages of backwardness refers to the claim that low living standards are good for a country's citizens.
Correct Answer
False
False. The phrase means only that a country behind the technology frontier can copy existing technologies and so has extra room to catch up. It does not claim that being poor is good.
Category: Convergence
Question 16
Even when a poor country grows much faster than a rich country, closing a large income gap can take many decades.
Correct Answer
True
True. Because the rich country starts from a much higher level, its smaller percentage gains are large in dollars. Even optimistic catch-up scenarios take decades to narrow a gap substantially.
Category: Convergence
Question 17
GDP per capita is calculated by dividing a country's population by its GDP.
Correct Answer
False
False. GDP per capita is GDP divided by population. It adjusts for differences in population so that living standards can be compared across countries of different sizes.
Category: Labor Productivity
Question 18
Successfully adopting technology developed elsewhere depends on having supportive educational and economic institutions.
Correct Answer
True
True. Copying a technology is not automatic. Without educated workers, working markets and sound public policy, the potential advantage of borrowing existing technology has little practical effect.
Category: Policies for Growth
Question 19
U.S. growth accounting studies find that growth in physical capital explains nearly all of the country's economic growth.
Correct Answer
False
False. These studies typically find that physical and human capital together explain half or less of U.S. growth, with technology as the largest contributor.
Category: Growth Accounting
Question 20
When population grows faster than real GDP, real GDP per capita falls.
Correct Answer
True
True. GDP per capita is output divided by population, so if the denominator grows faster than the numerator, the ratio declines. Income growth must exceed population growth for living standards to rise.
Category: Labor Productivity