Question 1

According to the neoclassical growth model, what is the primary reason that capital accumulation alone cannot sustain long-run economic growth?

Accepted Answer

Because capital is subject to diminishing marginal returns, so each additional unit of capital adds less to output over time.

Question 2

Given the Cobb-Douglas production function $$Y = T \cdot K$$^{1/3}$$L^{2/3}$$, what is the per capita output ($$y$) formula?

Accepted Answer

$$y = T \cdot k$$^{1/3}$$

Question 3

Suppose Country A and Country B have the same technology level ($$T$$), but Country A has much less capital per worker ($$k) $$than Country B. According to the neoclassical theory, what is the expected outcome over time?

Accepted Answer

Country A will grow faster than Country B and eventually catch up in per capita output.

Question 4

Which of the following best describes the concept of 'creative destruction' as discussed in New Growth Theory?

Accepted Answer

The process by which new innovations render old industries and products obsolete, driving economic growth.

Question 5

Why are intellectual property rights (such as patents) considered important in the context of New Growth Theory?

Accepted Answer

They provide innovators with temporary monopolies, incentivizing costly R&D investments.

Question 6

Which of the following is NOT a type of unemployment discussed in the lecture?

Accepted Answer

Seasonal unemployment

Question 7

A country experiences a devastating hurricane that destroys much of its capital stock. According to the neoclassical growth model, what is the likely economic outcome in the years following the disaster?

Accepted Answer

The country will experience rapid growth as high marginal returns to capital spur investment and recovery.

Question 8

Which of the following best explains why some poor countries fail to converge with rich countries, despite having access to similar technologies?

Accepted Answer

Differences in institutions, such as unstable property rights or ongoing conflict, discourage investment and growth.

Question 9

Which of the following is a defining feature of knowledge as an economic asset in New Growth Theory?

Accepted Answer

It is non-rivalrous, meaning one person's use does not diminish another's ability to use it.

Question 10

A region suffers from frequent military conflict and weak property rights. According to institutional economics, what is the most likely impact on economic growth?

Accepted Answer

Investment in capital and R&D will be low, trapping the region in underdevelopment.

Question 11

Which of the following scenarios best illustrates structural unemployment?

Accepted Answer

Workers in a city lose their jobs when car assembly plants relocate abroad due to new trade agreements, and their skills are no longer in demand.

Question 12

Suppose the production function is $$Y = T \cdot K$$^{1/3}$$L^{2/3}. If $$technology ($$T) $$doubles while $$K$$ and $$L$$ remain constant, what happens to output ($$Y$)?

Accepted Answer

$$Y$$ doubles

Question 13

Which of the following is a potential downside of granting strong intellectual property rights to innovators?

Accepted Answer

Monopolies may restrict output and set prices above marginal cost, creating deadweight loss.

Question 14

If a country invests heavily in education and specialized skills, which aspect of economic growth is it most directly enhancing?

Accepted Answer

Human capital, which supports innovation and pushes the technological frontier.

Question 15

Which of the following best describes the role of 'institutions' in economic growth, according to the lecture?

Accepted Answer

They set the rules and incentives that determine whether investment and innovation are rewarded or discouraged.

Question 16

A country with high savings and investment rates but stagnant growth is most likely limited by which factor, according to the neoclassical model?

Accepted Answer

A lack of technological progress ($$T)$$

Question 17

Which of the following is an example of frictional unemployment?

Accepted Answer

A recent college graduate spends several months searching for a job that matches their skills.

Question 18

If the marginal product of capital is subject to diminishing returns, what happens to the incremental output produced by each additional unit of capital as $$k$$ increases?

Accepted Answer

It decreases

Question 19

Which of the following statements about the 'copycat problem' in New Growth Theory is correct?

Accepted Answer

Because knowledge is non-rival, copycats can use innovations without incurring the original R&D costs, reducing the innovator's profits.

Theories of Economic Growth: Neoclassical, New Growth, and Institutions

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