Question #1

Reading: Reading 6 Economic Growth

PDF File: Reading 6 Economic Growth.pdf

Page: 2

Status: Unattempted

Correct Answer: B

Part of Context Group: Q1-4 First in Group
Shared Context
ital 4.80% 4.50% 3.00% The forecasted growth rate in potential GDP for Cragistan and Kurtenstein are 4.4% and 3.0% respectively. The estimated long-term actual GDP growth rate for West Lundia is lower than its estimated potential GDP growth rate. Monetary Policy: All three countries have relatively independent central banks. All three target inflation as a primary goal. Fiscal Policy: West Lundia has a slight surplus and actively seeks to affect aggregate demand. Cragistan has a moderate surplus and may seek to affect aggregate demand. Kurtenstein has a slight deficit and does not actively affect aggregate demand. International Trade: West Lundia is a net exporter. Cragistan is a net exporter. Kurtenstein is a net importer. Financial Markets: Kurtenstein has well established high volume liquid equity and fixed income markets. Cragistan and West Lundia both have moderately liquid equity markets. Cragistan has a credit market with more volume and smaller credit spreads than West Lundia.
Question
As compared to Cragistan's long-term growth rate of labor, West Lundia's higher long-term growth rate of labor is most likely caused by the difference in the two countries':
Answer Choices:
A. fertility rates
B. labor force participation rates
Explanation
West Lundia has a slightly lower fertility rate and a less friendly immigration policy both leading to a lower expected population growth rate of 1.4% while Cragistan's population is expected to grow at 1.7%. West Lundia's growth rate of labor is caused by a higher labor force participation rate and an increase in the number of hours per worker.
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