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MULTIPLE CHOICE QUESTIONS

1) The correlation coefficient between a country’s annual defence spending and its annual losses due to piracy is -1. If it raises its defence spending by 5 per cent next year, what is the most likely movement in its losses due to piracy?
Select one:
rise by 5 per cent
fall by 5 per cent
no change
rise by less than 5 per cent

2) The US Department of Defence has identified a strong inverse correlation between the number of spy-plane missions flown by South Dismaya and the number of bomb tests carried out by North Dismaya. Why can’t we be sure, from this information, that South Dismaya’s stepping-up of spy-plane missions is deterring North Dismaya from carrying out bomb tests?
Select one:
it’s possible that South Dismaya authorises more spy-plane missions after observing that North Dismaya’s bomb-testing programme has gone quiet
if it’s an inverse correlation, an increase in South Dismaya’s spying missions would provoke more North Dismayan bomb tests and not deter them
a strong inverse correlation implies that there’s no causal link between the two observed events
observation of events by a third party (like the United States) will always destabilise any causal link between them

3) Which of the following could cause a country’s real per capita GDP to fall?
Select one:
the inflation rate exceeding the nominal GDP growth rate
the nominal GDP growth date exceeding the population growth rate
nominal GDP growth of 5 per cent, price inflation of 4 per cent and a stable population
nominal GDP growth of 2 per cent, population growth of 0.5 per cent, and price inflation of 1 per cent

4) Complete the paragraph below by using the correct words or phrases from the list below the text into the blank boxes. Note that there is one more word or phrase listed than you actually need.

According to neoclassical growth theory, a high rate of                   can result in capital deepening, as the                   ratio rises. But in the long run, the theory does not show that countries with higher rates of investment grow faster: they merely use more capital-intensive techniques to deliver the same                      . The capital: labour ratio adjusts so that net investment – the addition to the capital stock – keeps pace with the growth of the labour force. Increases in per capita GDP depend on                           , which raises the output from capital and labour even when their ratio doesn’t change.

capital: labour: investment: capital output: output: capital widening

5) Match each term to the appropriate definition by inserting the term to the word to the slot on the right of the definition.
Definition    Term
Increase in the capital: labour ratio
Growth in total output not traceable to rise in labour or capital inputs
Output growth that is directly proportional to growth in capital and labour inputs
Fall in the dispersion of per capita national income

Constant returns to scale: Total factor productivity growth: Capital deepening: Sigma convergence

6) Indicate which of the below statements are true and which are false:
Research-and-development spending and education are among contributors to per capita GDP growth identified by post-neoclassical growth theory.
Neoclassical growth theory explains how capital widening can increase per capita GDP, because of increasing returns to scale.
Post-neoclassical theory identifies contributors to GDP growth that can delay or prevent the convergence of countries’ per capita GDP.
If China and the United States achieve the same GDP growth rate, the absolute gap between Chinese and US GDP will widen.
7) If average annual real growth rates are 10 per cent for China and 2 per cent for the United States over the next ten years, which of the following must be true?
Select one:
the gap between the two countries’ per capita GDP will only narrow if China’s population growth is slower than that of the United States
China’s real GDP will more than double in this period
China’s real GDP will match the United States’ by the end of this period
the gap between US and Chinese per capita GDP will widen over this period

8)  The chart below shows the average annual growth rates of various countries’ per capita GDPs in the years 2000 to 2015, plotted against their initial level of per capita GDP.

Which statement about the chart is CORRECT?
Select one:
to achieve this inverse relationship, the chart must have excluded fast-growing emerging markets
the chart shows that convergence of per capita GDPs was taking place
the chart shows that having a high average income in 2000 generally enabled countries to be among the fastest-growing in the years that followed
the chart shows that all countries’ GDPs rose rapidly over this period, because of inflation

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