Question #2

Reading: Reading 6 Economic Growth

PDF File: Reading 6 Economic Growth.pdf

Page: 3

Status: Unattempted

Correct Answer: A

Part of Context Group: Q2-4 First in Group
Shared Context
- 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': A) fertility rates. B) labor force participation rates. C) immigration policies.
Question
Cragistan's potential GDP growth rate exceeds that of Kurtenstein's. Which difference in factors could help justify Cragistan's higher sustainable growth rate?
Answer Choices:
A. The savings rate between the two countries
B. The established financial sector intermediation
C. The free trade and unrestricted capital flows
Explanation
One precondition for growth is adequate savings and investment. A country with a higher savings rate is likely to have a higher potential growth since a country with a higher savings rate is less likely to need foreign investments for growth. Because both Cragistan and Kurtenstein are both part of the monetary union with a floating currency, there is no difference in free trade and restrictions on capital flows. Cragistan has a less established financial sector, but the difference in itself may not be a potential benefit or a potential issue.
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