Economic Growth Practice Questions

8 representative multiple-choice questions on economic growth for AP Macroeconomics, drawn from our 23-question bank for this module. Work through each one, then open “Show answer” for the correct choice and an explanation. For scored, timed practice across the full bank, take a full practice test.

1. 1. Which of the following is the best definition of economic growth?

   • A. Any increase in nominal GDP
   • B. An increase in real GDP per capita over time
   • C. A decrease in unemployment
   • D. An increase in government spending
   Show answer

   Correct answer: B. An increase in real GDP per capita over time

   Economic growth is a sustained rise in real GDP per capita. Nominal GDP can rise simply because of inflation, which is why Option A misses the mark. Per capita matters because a country whose population grows as fast as its output isn't getting richer on an individual basis. Lower unemployment and higher government spending might affect short-term output levels, but they don't define long-run economic growth.

2. 2. Which of the following is an example of human capital investment?

   • A. A company buying a new factory
   • B. Government spending on public education and job training
   • C. A firm purchasing computer equipment
   • D. The construction of highways
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   Correct answer: B. Government spending on public education and job training

   Human capital means the skills, education, and training embedded in workers. Public education spending builds those capabilities directly. Options A, C, and D are physical capital: factories, equipment, and infrastructure. The distinction matters because the two types of capital combine in production; workers with better training extract more from the same physical tools, which is part of why developing economies that invest heavily in education see faster growth.

3. 3. A country doubles its capital stock but keeps labor and technology constant. According to the principle of diminishing returns, what will happen to output?

   • A. Output will double
   • B. Output will increase, but by less than double
   • C. Output will triple
   • D. Output will remain unchanged
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   Correct answer: B. Output will increase, but by less than double

   Diminishing returns to capital is a key reason growth slows in rich countries. The first factory on a farm transforms productivity. The tenth factory adds much less. Output rises when capital doubles, but at a decreasing rate. This explains why countries with low starting capital (China in the 1980s, Japan in the 1950s) grew fast as they caught up, while mature economies like the US and Western Europe grew more slowly. Sustained long-run growth therefore requires technological progress, because capital accumulation alone eventually hits diminishing returns.

4. 4. If Country A has a real GDP growth rate of 4% per year and Country B has a growth rate of 2% per year, starting from the same real GDP, which statement about their economic performance over 35 years is correct?

   • A. Country A's GDP will be approximately 2 times larger than Country B's
   • B. Country A's GDP will double once, while Country B's will double 1.5 times
   • C. Country A's GDP will double approximately twice (quadruple), while Country B's will double once
   • D. Both countries will have the same GDP since the difference is only 2 percentage points
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   Correct answer: C. Country A's GDP will double approximately twice (quadruple), while Country B's will double once

   Use the Rule of 70. Country A doubles every 70/4 ≈ 17.5 years, so 35 years gives two doublings, meaning 4x the starting GDP. Country B doubles every 70/2 = 35 years, so one doubling over the same period. If both started at $10,000 per capita, Country A would reach $40,000 while Country B would only reach $20,000. That gap illustrates why economists care about small growth rate differences: the Asian Tigers' 6-8% growth compounded into a generational transformation that 2-3% growth could never produce.

5. 5. Natural resources (like oil or minerals) can sometimes hinder rather than promote long-run economic growth, a phenomenon known as the "resource curse." Which of the following best explains this paradox?

   • A. Natural resources are always depleted before they can be used
   • B. Resource wealth can lead to over-reliance on extraction, currency appreciation that hurts other exports, corruption, and weaker institutions
   • C. Countries with natural resources cannot develop human capital
   • D. Natural resources decrease the labor force
   Show answer

   Correct answer: B. Resource wealth can lead to over-reliance on extraction, currency appreciation that hurts other exports, corruption, and weaker institutions

   The resource curse works through multiple channels. When a country exports oil or minerals, the currency appreciates, which makes manufacturing and other exports less competitive. This is called Dutch Disease, named for the problem the Netherlands faced after discovering natural gas in the 1960s. Resource wealth can also concentrate political power, foster corruption, and reduce pressure to develop broader institutions and industries. Contrast Nigeria (oil-rich but struggled to diversify) with South Korea (resource-poor but invested heavily in education and manufacturing). Norway avoided the curse by putting oil revenues into a sovereign wealth fund and maintaining strong institutions.

6. 6. Which of the following best represents investment in human capital?

   • A. A company buying new factory equipment
   • B. A worker enrolling in a coding boot camp to learn new skills
   • C. A household purchasing a new home
   • D. A government issuing bonds to finance infrastructure
   Show answer

   Correct answer: B. A worker enrolling in a coding boot camp to learn new skills

   Human capital = skills, knowledge, and training embodied in workers. Education, training, and on-the-job learning all count. Option A is physical capital investment. Option C is residential investment. Option D is government finance — infrastructure built with those bonds could be physical capital, but issuing the bonds itself isn't capital accumulation.

7. 7. Diminishing returns to capital implies that:

   • A. Each additional unit of capital adds less to output than the previous one, holding other inputs fixed
   • B. Countries with more capital always grow faster
   • C. Technology cannot improve capital productivity
   • D. Capital eventually becomes worthless
   Show answer

   Correct answer: A. Each additional unit of capital adds less to output than the previous one, holding other inputs fixed

   Diminishing returns is about marginal product — adding the 10th machine to a factory with 10 workers adds less output than adding the 2nd. That's why capital-scarce economies can 'catch up' quickly but capital-rich economies slow down. Option B is backwards (capital-poor economies grow faster in catch-up). Technology can and does offset diminishing returns.

8. 8. Which of the following is an example of a positive externality from research and development (R&D)?

   • A. The original inventor earns monopoly profits from a new drug
   • B. Competing firms eventually copy the innovation and costs fall industry-wide
   • C. The firm recoups its R&D costs through higher sales
   • D. The firm's CEO gets a large bonus
   Show answer

   Correct answer: B. Competing firms eventually copy the innovation and costs fall industry-wide

   R&D creates knowledge that often spills over to other firms and industries — the original inventor can't capture all the social benefit. This is why the private market UNDER-invests in R&D and governments typically subsidize it (via patents, tax credits, NIH/NSF grants, etc.). Option A describes private returns, not spillovers.