Table of Contents
CFA Level 2 – Economics, Session 4 – Reading 14, Economic Growth – LOS c
(Notes, Practice Questions, Sample Questions)
1. Which of the following is most accurate regarding labor productivity curves? Growth in capital per labor hour causes:
A) productivity curves to shift; technological growth causes movement along productivity curves.
B) and technological growth cause productivity curves to shift.
C) movements along a productivity curve; technological growth causes productivity curves to shift
Explanation: (C) The productivity curve results when labor productivity (real gross domestic product (GDP) per labor hour) is plotted against capital per labor hour at a given state of technology. A productivity curve shows how real GDP per labor hour changes as capital per labor hour changes. Growth in capital per labor hour causes movements along a productivity curve. Technological growth causes productivity curves to shift
2. Labor productivity may be decomposed into which of the following two factors?
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A) Growth in both physical capital and human capital per labor hour.
B) Growth in physical capital per labor hour and growth in real interest rates.
C) Growth in physical capital per labor hour and technological change
Explanation: (C) Changes in the growth rate of labor productivity may be decomposed into two components: (1) the growth in physical capital per labor hour, and (2) technological change. The one third rule is useful in this decomposition
3. Which of the following is least likely to be observed when examining a labor productivity curve?
A) The change in real GDP per labor hour as capital per hour changes, holding technology constant.
B) The change in real GDP per labor hour as technology changes, holding capital per labor hour constant.
C) The rate of change in technology as labor increases
Explanation: (C) Labor productivity curves show: (1) the change if real GDP per labor hour as capital per labor hour changes, at a given state of technology, and (2) the change in real GDP per labor hour increases as the state of technology changes, at a given level of capital per labor hour. There is no way to directly observe the rate of change in technology from a labor productivity curve
4. Which of the following is least likely to be considered necessary to sustain long-term economic growth?
A) Investment in human capital.
B) Positive population growth.
C) Discovery of new technologies
Explanation: (B) For economic growth to continue over the long term, societies must have incentives that encourage the pursuit of savings and investment in new capital, investment in human capital, and discovery of new technologies
5. Technological progress is most extensively applied to which of the following?
A) The developments in human capital.
B) Improvements in the productivity of physical capital.
C) The creation of investment opportunities and savings incentives
Explanation: (B) While the most all-encompassing and powerful technologies are the development of human capital (written and spoken language, science, and mathematics) most technological progress involves improvements in the productivity of physical capital
6. Which of the following activities provides the least significant contribution to economic growth?
A) Discovery of new technologies.
B) Savings and investment in new capital.
C) Increased consumer spending
Explanation: (C) Three activities are necessary to result in persistent economic growth:
Savings and investment in new capital increase labor productivity, which is defined as real GDP per labor hour. Saving and investment in new capital increases the level of capital per worker.
Investment in human capital is the investment in people’s skills and knowledge, leading to productivity improvements and technological advances.
Discovery of new technologies contributes to sustained economic growth by making human capital and physical capital more productive
