Economics - Economics Section 1

71. In the neoclassical model, a decrease in total factor productivity reflects a decrease in:

  • Option : B
  • Explanation : TFP is a scale factor primarily reflecting technology. A decrease in TFP implies the output decreases for any level of factor inputs.
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72. The main factor affecting economic growth in developed countries is the:

  • Option : C
  • Explanation : Technology is the main factor affecting economic growth in developed countries.
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73. The income differences between emerging market countries and developed countries will converge over time most likely due to:

  • Option : C
  • Explanation : The benefit of an additional unit of capital in emerging market countries is much higher than the benefit of an additional unit of capital in developed countries. This is because developed countries have a much higher level of capital relative to emerging market countries.
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74. Assume economic activity is decelerating, inflation is accelerating, and businesses have slowed their rate of hiring. The economy is most likely in which phase of the business cycle?

  • Option : A
  • Explanation : The peak phase is characterized by deceleration of economic activity, acceleration of inflation and a slowdown in hiring rate. During early expansion, Gross domestic product (GDP), industrial production, and other measures of economic activity turn from decline to expansion; layoffs slow (and net e Employment turns positive), but new hiring does not yet occur and the unemployment rate remains high; consumer and business spending starts rising; Inflation remains moderate and may continue to fall. During late expansion, GDP, industrial production, and other measures of economic activity show an accelerating rate of growth; Business begins full time rehiring as overtime hours rise. The unemployment rate falls to low levels; consumer and business spending starts rising; Inflation picks up modestly.
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