# Macroeconomics - Chapter 8

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• 1.

### Economic growth is best defined as an increase in

• A.

Either real GDP or real GDP per capita

• B.

Nominal GDP

• C.

Total consumption expenditures

• D.

Wealth in the economy

A. Either real GDP or real GDP per capita
Explanation
Economic growth is typically measured by an increase in either real GDP or real GDP per capita. Real GDP refers to the total value of goods and services produced in an economy, adjusted for inflation. Real GDP per capita, on the other hand, measures the average economic output per person in the population. Both indicators are commonly used to gauge the overall growth and development of an economy over time.

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• 2.

### Real GDP per capita is found by

• A.

• B.

Subtracting population from real GDP

• C.

Dividing real GDP by population

• D.

Dividing population by real GDP

C. Dividing real GDP by population
Explanation
The correct answer is dividing real GDP by population. Real GDP per capita is a measure that calculates the average economic output per person in a country. To obtain this measure, we divide the real GDP (which represents the total economic output) by the population (which represents the number of people in the country). This calculation allows us to understand the economic well-being of individuals in a country by considering both the overall economic output and the size of the population.

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• 3.

### Real GDP per capita

• A.

Cannot grow more rapidly than real GDP

• B.

Cannot grow more slowly than real GDP

• C.

Necessarily grows more rapidly than real GDP

• D.

Can grow either more slowly or more rapidly than GDP

D. Can grow either more slowly or more rapidly than GDP
Explanation
Real GDP per capita can grow either more slowly or more rapidly than real GDP because it is a measure of the average economic output per person in a country. This means that changes in population growth can affect real GDP per capita, causing it to grow at a different rate than real GDP. Additionally, factors such as changes in productivity, technological advancements, and income distribution can also influence the growth rate of real GDP per capita independently from real GDP.

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• 4.

### Which of the following best measures improvements in the standard of living of a nation

• A.

Growth of nominal GDP

• B.

Growth of real GDP

• C.

Growth of real GDP per capita

• D.

Growth of national income

C. Growth of real GDP per capita
Explanation
The growth of real GDP per capita is the best measure of improvements in the standard of living of a nation because it takes into account both economic growth and population growth. Real GDP per capita measures the average income or output per person in a country, adjusted for inflation. This indicator reflects the actual increase in the production and income available to each individual, providing a more accurate measure of the overall well-being and living standards of the population.

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• 5.

### If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, it's real GDP per capital will

• A.

Remain constant

• B.

Fall by 6%

• C.

Rise by 6%

• D.

Fall by 12%

A. Remain constant
Explanation
If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, its real GDP per capita will remain constant. This is because real GDP per capita is calculated by dividing the real GDP by the population. In this case, both the numerator (real GDP) and the denominator (population) increased by the same percentage (6%). Therefore, the ratio between real GDP and population remains the same, resulting in a constant real GDP per capita.

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• 6.

### For a nations real GDP per capita to rise during a year

• A.

Consumption spending must increase

• B.

Real GDP must increase more rapidly than population

• C.

Population must increase more rapidly than real GDP

• D.

Investment spending must increase

B. Real GDP must increase more rapidly than population
Explanation
In order for a nation's real GDP per capita to rise during a year, it is necessary for the real GDP to increase at a faster rate than the population. This means that the total output of goods and services in the country must grow at a faster pace than the number of people in the population. This could be due to factors such as increased productivity, technological advancements, or increased investment in the economy. Consumption spending and investment spending may also contribute to the increase in real GDP, but they are not the sole determining factors.

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• 7.

### Growth is advantageous to a nation because it

• A.

Promotes faster population growth

• B.

Lessens the burden of scarcity

• C.

Eliminates the economizing problem

• D.

Slows the growth of wants

B. Lessens the burden of scarcity
Explanation
Economic growth is advantageous to a nation because it leads to increased production and income, which in turn helps to alleviate scarcity. When a nation experiences economic growth, there is a higher availability of goods and services, reducing the burden of scarcity and improving the standard of living for its citizens.

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• 8.

### For comparing changes in potential military strength and political preeminence, the most meaningful measure of economic growth would be changes in

• A.

Total nominal output

• B.

Total real output

• C.

Per capita output

• D.

Per family output

B. Total real output
Explanation
The most meaningful measure of economic growth for comparing changes in potential military strength and political preeminence would be changes in total real output. Total real output takes into account the inflation-adjusted value of goods and services produced, providing a more accurate representation of actual economic growth. This measure allows for a more comprehensive analysis of the country's productive capacity and its ability to sustain military and political endeavors over time. Comparing changes in total real output would provide a clearer understanding of the country's economic strength and its potential impact on military and political power.

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• 9.

• A.

3

• B.

4

• C.

5

• D.

10

C. 5
• 10.

### Between years one and two, real GDP per capita grew by approximately______ percent in Alta

• A.

3

• B.

4

• C.

5

• D.

10

B. 4
Explanation
Between years one and two, real GDP per capita grew by approximately 4% in Alta. This means that the total output of goods and services per person increased by 4% during that time period. This growth indicates an improvement in the standard of living and economic performance in Alta.

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• 11.

### Between years 2 and 3

• A.

Alta's real GDP grew more rapidly than Zorn's real GDP

• B.

Real GDP fell in Zorn

• C.

Population growth reduced Alta's real GDP growth to zero

• D.

Population fell in Alta

A. Alta's real GDP grew more rapidly than Zorn's real GDP
Explanation
Between years 2 and 3, Alta's real GDP grew more rapidly than Zorn's real GDP. This means that Alta's economy experienced a higher rate of growth in terms of its overall production of goods and services adjusted for inflation compared to Zorn's economy during this time period. This indicates that Alta's economy was expanding at a faster pace and potentially experiencing higher levels of economic development and prosperity compared to Zorn's economy.

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• 12.

### Per capita GDP was about

• A.

\$105 in year 3 in Alta

• B.

\$303 in year 3 in Zorn

• C.

\$200 in year 1 in Zorn

• D.

\$5 in year 2 in Alta

B. \$303 in year 3 in Zorn
Explanation
The per capita GDP refers to the average income per person in a specific region or country. In this case, the given answer states that the per capita GDP in year 3 in Zorn was \$303. This means that on average, each person in Zorn earned \$303 in that particular year.

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• 13.

### Given the annual rate of economic growth, the rule of 70 allows one to

• A.

Determine the accompanying rate of inflation

• B.

Calculate the size of the GDP gap

• C.

Calculate the number of years required for real GDP to double

• D.

Determine the growth rate of per capita GDP

C. Calculate the number of years required for real GDP to double
Explanation
The rule of 70 is a mathematical formula used to estimate the number of years it takes for a variable to double, based on its annual growth rate. In this case, the question is asking how the rule of 70 can be used in relation to real GDP. By applying the rule of 70 to the annual rate of economic growth, one can calculate the number of years it would take for real GDP to double. This can be useful in understanding the pace of economic growth and predicting future economic trends.

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• 14.

### The number of years required for real GDP to double can be found by

• A.

Dividing the annual growth rate by .07

• B.

Multiplying the annual growth rate by 70

• C.

Dividing 70 by the annual growth rate

• D.

Adding 14 to annual growth rate

C. Dividing 70 by the annual growth rate
Explanation
The correct answer is dividing 70 by the annual growth rate. This is because dividing 70 by the annual growth rate gives us the number of years required for real GDP to double. This formula is derived from the Rule of 70, which states that the doubling time of a variable can be approximated by dividing 70 by its growth rate. Therefore, by dividing 70 by the annual growth rate, we can determine the number of years it will take for real GDP to double.

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• 15.

### At an annual growth rate of 7%, real GDP will double in about

• A.

11 1/2 years

• B.

10 years

• C.

13 1/2 years

• D.

9 years

B. 10 years
Explanation
At an annual growth rate of 7%, real GDP will double in about 10 years. This can be calculated using the rule of 70, which states that to approximate the number of years it takes for a variable to double, divide 70 by the growth rate. In this case, 70 divided by 7 equals 10, indicating that it would take approximately 10 years for real GDP to double at a 7% annual growth rate.

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• 16.

### If a nation's real GDP is growing by 5 percent per year, its real GDP will double in approximately

• A.

22 years

• B.

20 years

• C.

14 years

• D.

8 years

C. 14 years
Explanation
If a nation's real GDP is growing by 5 percent per year, it means that the GDP is increasing by 5 percent of its current value each year. To determine how long it takes for the GDP to double, we can use the rule of 70. The rule of 70 states that to approximate the number of years it takes for a variable to double, divide 70 by the annual growth rate. In this case, dividing 70 by 5 gives us 14, indicating that the nation's real GDP will double in approximately 14 years.

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• 17.

### If the economy's real GDP doubles in 18 years, we can

• A.

Not say anything about the average annual rate of growth

• B.

Conclude that its average annual rate of growth is about 5.5%

• C.

Conclude that its average annual rate of growth is about 2.4%

• D.

Conclude that its average annual rate of growth is about 3.9%

D. Conclude that its average annual rate of growth is about 3.9%
Explanation
If the economy's real GDP doubles in 18 years, we can conclude that its average annual rate of growth is about 3.9%. This is because if the GDP doubles in 18 years, it means that the economy is growing at an average annual rate of approximately 3.9%.

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• 18.

### Between 1950 and 2015, US real GDP grew at an average annual rate of about

• A.

2%

• B.

3.1%

• C.

5.1%

• D.

8.6%

B. 3.1%
Explanation
Between 1950 and 2015, the US real GDP grew at an average annual rate of 3.1%. This means that the country's economic output increased by an average of 3.1% each year during this time period. This growth rate indicates a relatively steady and consistent expansion of the US economy over the years, which is considered to be a positive sign of economic development.

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• 19.

### Between 1950 and 2015, US real GDP per capita grew at an average annual rate of about

• A.

5.5%

• B.

4.2%

• C.

3.2%

• D.

2%

D. 2%
Explanation
Between 1950 and 2015, US real GDP per capita grew at an average annual rate of 2%. This means that the average increase in real GDP per person in the US during this period was 2% each year. This indicates a relatively slow but steady growth in the country's economic output per person over the 65-year period.

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• 20.

### Real per capita GDP in the United States in 2015 was approximately

• A.

\$16,349

• B.

\$47,845

• C.

\$50,820

• D.

\$16.3 trillion

C. \$50,820
Explanation
The correct answer is \$50,820. This is the approximate value of real per capita GDP in the United States in 2015. Real per capita GDP is a measure of the average economic output per person in a country, adjusted for inflation. It represents the overall economic well-being and standard of living of the population. In 2015, the United States had a strong economy with a high real per capita GDP, indicating a relatively high standard of living for its citizens.

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• 21.

### Under what circumstances do rates of economic growth understate the growth of economic well-being

• A.

Economic growth has occurred because of the increased length of the workweek

• B.

Product quality has improved

• C.

Air quality has declined as real GDP has increased

• D.

Population has grown faster than real output

B. Product quality has improved
Explanation
Under certain circumstances, rates of economic growth may understate the growth of economic well-being when product quality improves. This is because economic growth is typically measured by changes in real GDP, which only captures the quantity of goods and services produced, not necessarily their quality. If there is an improvement in product quality, it means that consumers are getting more value and satisfaction from the same amount of goods and services. However, this increase in economic well-being may not be fully reflected in the GDP growth rate, leading to an understatement of overall economic progress.

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• 22.

### Which of the following statements is most accurate about modern economic growth

• A.

Economic historians mark modern economic growth is beginning around A.D. 1500

• B.

Modern economic growth is characterized by sustained and ongoing increases in living standards

• C.

Modern economic growth has virtually eliminated business cycle fluctuations

• D.

Modern economic growth has been distributed more or less equally across nations

B. Modern economic growth is characterized by sustained and ongoing increases in living standards
Explanation
Modern economic growth is characterized by sustained and ongoing increases in living standards. This means that over time, there has been a consistent improvement in the overall quality of life for individuals and societies as a whole. This can be seen through various indicators such as increased income levels, improved access to healthcare and education, and advancements in technology and infrastructure. This statement highlights the long-term positive impact that economic growth has on people's well-being and quality of life.

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• 23.

### Countries that have experienced modern economic growth have also tended to

• A.

• B.

Restrict women and minorities from holding certain economic and political positions

• C.

Move toward more democratic forms of government

• D.

Have less leisure time for support and artistic activities

C. Move toward more democratic forms of government
Explanation
Countries that have experienced modern economic growth have tended to move toward more democratic forms of government. This is because economic growth often leads to a rise in education levels, urbanization, and a growing middle class, which in turn creates demands for political participation and representation. As people become more prosperous and educated, they are more likely to demand political rights and freedoms, leading to a transition towards democratic governance.

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• 24.

### The Industrial Revolution and modern economic growth resulted in

• A.

The average human life span more than doubling

• B.

A major population shift from urban to rural areas

• C.

Increased production by local craftspeople

• D.

All of these

A. The average human life span more than doubling
Explanation
The Industrial Revolution and modern economic growth resulted in the average human life span more than doubling. This can be attributed to various factors such as advancements in medical technology, improved sanitation and hygiene practices, and better access to healthcare and nutrition. These developments led to a significant decrease in mortality rates and an increase in life expectancy.

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• 25.

### Economic historians date the start of the Industrial Revolution around the year 1776, when James Watt

• A.

Built the first factory for mass production

• B.

Invented the steam locomotive

• C.

Successfully lobbied the British Parliament for the enactment of patent legislation to protect new inventions

• D.

Invented and built a more powerful and efficient steam engine

D. Invented and built a more powerful and efficient steam engine
Explanation
James Watt's invention and construction of a more powerful and efficient steam engine is considered the start of the Industrial Revolution by economic historians. This invention revolutionized the manufacturing industry by providing a reliable and efficient source of power. With the steam engine, factories could increase their production capacity, leading to mass production. It also enabled the development of new industries, such as transportation, as steam engines were used to power locomotives and ships. Watt's steam engine had a profound impact on society, driving economic growth and transforming the way goods were produced and transported.

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• 26.

### Real per capita GDP

• A.

Grows at approximately the same rate for all countries

• B.

Was much more equal across nations in 1820 than it is today

• C.

Has been about 20 times higher in the richer nations than the poorer nations for about 2000 years

• D.

Grows much faster in leader countries then and follower countries

B. Was much more equal across nations in 1820 than it is today
Explanation
The correct answer suggests that real per capita GDP was more equal across nations in 1820 compared to today. This implies that there was less disparity in economic prosperity among countries in 1820, with a more balanced distribution of wealth and income. However, over time, economic growth and development have led to increasing inequality between nations, resulting in a larger gap between richer and poorer countries in terms of GDP per capita.

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• 27.

### Which of the following economic regions has experienced the least growth in real GDP per capita since 1820

• A.

Africa

• B.

Asia excluding Japan

• C.

Latin America

• D.

Option 4

A. Africa
Explanation
Africa has experienced the least growth in real GDP per capita since 1820. This can be attributed to various factors such as political instability, widespread poverty, inadequate infrastructure, and limited access to education and healthcare. Additionally, Africa has faced challenges such as colonialism, civil wars, and economic exploitation, which have hindered its economic development. These factors have contributed to the slow growth of real GDP per capita in Africa compared to other economic regions like Asia excluding Japan and Latin America.

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• 28.

### Which of the following economic regions has experienced the most growth in real GDP per capita since 1820

• A.

Japan

• B.

United States

• C.

Latin America

• D.

Western Europe

B. United States
Explanation
The United States has experienced the most growth in real GDP per capita since 1820. This is because the United States has been a major global economic powerhouse for many years, with a strong industrial base, technological advancements, and a large consumer market. Additionally, the United States has had periods of rapid economic growth, such as during the Industrial Revolution and after World War II, which have contributed to its overall economic success.

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• 29.

### Which of the following statements is most accurate about the prospects for poorer countries catching up with richer countries

• A.

Catching up is unlikely to occur because their growth rates are the same on average

• B.

Catching up is unlikely to occur because richer countries tend to grow at a faster rate

• C.

Catching up as possible, but only if growth rates in leader countries fall to zero or become negative

• D.

Catching up as possible, as follower countries tend to grow faster than leader countries

D. Catching up as possible, as follower countries tend to grow faster than leader countries
• 30.

### In 1998, living standards in the United States were nearly_____ times higher than those in Africa

• A.

3

• B.

8

• C.

14

• D.

20

D. 20
Explanation
Living standards in the United States were nearly 20 times higher than those in Africa in 1998. This means that the quality of life, including factors such as income, education, healthcare, and access to basic necessities, was significantly better in the United States compared to Africa during that time period. The large difference in living standards highlights the economic and social disparities between the two regions.

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• 31.

### Economic growth rates and follower countries

• A.

Tend to be lower than in leader countries because labor forces in follower countries are too small

• B.

Tend to exceed those in leader countries because followers can cheaply adopt the new technologies that leaders developed at relatively high costs

• C.

Will never bring real GDP per capita up to the same levels as in leader countries, even if follower growth rates are greater than those in leader countries

• D.

Typically average aboout 2% per year

B. Tend to exceed those in leader countries because followers can cheaply adopt the new technologies that leaders developed at relatively high costs
Explanation
Follower countries tend to exceed economic growth rates in leader countries because they can adopt new technologies developed by leaders at relatively low costs. This allows them to catch up and even surpass the leader countries in terms of economic growth.

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• 32.

### Real GDP per capita in the United States (as of 2010) exceeds that of France primarily because

• A.

The United States had higher annual rates of growth then France from 1960 through 2010

• B.

The United States has a much larger population than France

• C.

The United States has a higher percentage of the working age population in the labor force and because US employees average about 14% more hours worked per year

• D.

European Union rules severely limit France's access to technologies developed outside the region

C. The United States has a higher percentage of the working age population in the labor force and because US employees average about 14% more hours worked per year
Explanation
The correct answer is that the United States has a higher percentage of the working age population in the labor force and because US employees average about 14% more hours worked per year. This suggests that the United States has a larger proportion of its population actively participating in the workforce, which contributes to higher productivity and economic output. Additionally, the longer working hours in the United States imply higher levels of labor input, which can result in higher GDP per capita compared to France.

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• 33.

### Based on the annual number of hours worked per capita, labor supply in the United States exceeds that of France by about_____ percent

• A.

20

• B.

34

• C.

51

• D.

58

B. 34
Explanation
Labor supply refers to the number of hours worked per person in a given country. The question states that the labor supply in the United States exceeds that of France by about 34 percent. This means that, on average, people in the United States work about 34 percent more hours than people in France. This could be due to various factors such as cultural differences, labor market policies, or economic conditions.

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• 34.

### Strong property rights are important for modern economic growth because

• A.

They allow governments to extract the gains from private citizens investments

• B.

People are more likely to invest if they don't fear that others can take their returns on investment without compensation

• C.

They ensure an equitable distribution of income

• D.

Business cycle fluctuations will be smaller and less likely to disrupt investment patterns

B. People are more likely to invest if they don't fear that others can take their returns on investment without compensation
Explanation
Strong property rights are important for modern economic growth because people are more likely to invest if they don't fear that others can take their returns on investment without compensation. When individuals have confidence that their property rights will be protected, they are more willing to invest their resources, time, and effort into productive activities. This leads to increased economic growth as investment drives innovation, job creation, and overall productivity. Without strong property rights, individuals may be hesitant to invest as they fear that their investments could be taken away without any compensation, which can hinder economic growth.

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• 35.

### Which of the following institutional structures is most likely to promote growth

• A.

A well enforced system of patents and copyrights

• B.

A tightly regulated market system

• C.

A system of tariffs and other trade barriers to protect domestic companies

• D.

All of these

A. A well enforced system of patents and copyrights
Explanation
A well enforced system of patents and copyrights is most likely to promote growth because it provides incentives for innovation and creativity. By protecting the rights of inventors and creators, it encourages them to invest in research and development, leading to new technologies, products, and artistic works. This, in turn, stimulates economic growth by attracting investment, creating jobs, and fostering competition. Additionally, it allows for the dissemination of knowledge and ideas, facilitating further innovation and advancements in various industries.

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• 36.

### Which of the following institutional arrangements is most likely to promote growth

• A.

Patents and copyrights that expire quickly and are loosely enforced

• B.

Strong government control over resource allocation decisions

• C.

• D.

All of these

Explanation
Unrestricted trade between nations is most likely to promote growth because it allows for the free flow of goods and services across borders, leading to increased competition, specialization, and efficiency. It encourages countries to focus on their comparative advantages and engage in mutually beneficial trade relationships, which can lead to higher productivity, innovation, and economic growth. Additionally, unrestricted trade can lead to economies of scale, access to larger markets, and the transfer of technology and knowledge between nations, all of which can contribute to overall economic development.

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• 37.

### A competitive market system

• A.

Encourages growth by allowing producers to make profitable investment decisions based on market signals

• B.

Encourages growth by ensuring that everyone in society will receive a decent standard of living

• C.

Discourages growth because firms busy competing have no time to innovate or invest

• D.

Discourages growth unless government protects domestic firms from foreign competition

A. Encourages growth by allowing producers to make profitable investment decisions based on market signals
Explanation
A competitive market system encourages growth by allowing producers to make profitable investment decisions based on market signals. In a competitive market, producers are motivated to innovate and invest in order to gain a competitive edge and increase their profits. Market signals, such as changes in prices and demand, provide valuable information to producers, allowing them to make informed decisions about where to allocate their resources. This leads to a more efficient allocation of resources and encourages economic growth.

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• 38.

• A.

Discourages growth by increasing competitive pressures on domestic firms

• B.

Encourages growth by effectively eliminating all patent and copyright barriers to growth

• C.

Discourages growth compared to situations where the government strongly controls foreign trade

• D.

Encourages growth by promoting the rapid spread of new inventions and innovations

D. Encourages growth by promoting the rapid spread of new inventions and innovations
Explanation
Free trade encourages growth by promoting the rapid spread of new inventions and innovations. When countries engage in free trade, they are able to access a wider range of goods and services from other countries. This leads to increased competition, which in turn drives innovation and the development of new technologies. By allowing for the exchange of ideas and resources, free trade enables countries to benefit from the expertise and advancements of others, leading to overall economic growth.

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• 39.

### 1. Improvements in technology. 2. Increases in the supply (stock) of capital goods. 3. Purchases of expanding output. 4. Obtaining the optimal combination of goods, each at least-cost production. 5. Increases in the quantity and quality of natural resources. 6. Increases in the quantity and quality of human resources. Use the accompanying list to answer the following question. As distinct from the demand and efficiency factors of economic growth, the supply factors of economic growth are

• A.

2, 5, and 6 only

• B.

2, 4, 5 and 6 only

• C.

1, 2, 5, and 6 only

• D.

1, 3, and 4 only

C. 1, 2, 5, and 6 only
Explanation
The correct answer is 1, 2, 5, and 6 only. This is because improvements in technology (1), increases in the supply of capital goods (2), increases in the quantity and quality of natural resources (5), and increases in the quantity and quality of human resources (6) are all factors that contribute to the supply side of economic growth. These factors help to increase productivity, efficiency, and the overall capacity of an economy to produce goods and services.

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• 40.

### 1. Improvements in technology. 2. Increases in the supply (stock) of capital goods. 3. Purchases of expanding output. 4. Obtaining the optimal combination of goods, each at least-cost production. 5. Increases in the quantity and quality of natural resources. 6. Increases in the quantity and quality of human resources. Use the accompanying list to answer the following question. As distinct from the supply factors and demand factor of economic growth, the efficiency factor(s) of economic growth is (are)

• A.

1 only

• B.

4 only

• C.

1 and 3 only

• D.

3 only

D. 3 only
Explanation
The efficiency factor(s) of economic growth refers to the ability to produce more output with the same amount of inputs or resources. Option 3, "1 and 3 only," suggests that improvements in technology (1) and purchases of expanding output (3) are the efficiency factors of economic growth. This means that by utilizing technology advancements and increasing the production of goods and services, the economy can achieve higher levels of efficiency and productivity.

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