Question 1

Which concept is illustrated by the shape of the per-worker production function in the provided diagram, where increases in capital per hour worked result in smaller and smaller increases in real GDP per hour worked?

Accepted Answer

Diminishing returns to capital

Question 2

Suppose a country increases its capital per hour worked by the same amount each year, but its real GDP per hour worked increases by a smaller amount each year. What economic principle does this scenario demonstrate?

Accepted Answer

Diminishing returns to capital

Question 3

If a country’s per-worker production function is given by $$Y = A K$$^{0.5}$$, where Y$ is real GDP per hour worked, A$ is a technology parameter, and K$ is capital per hour worked, what happens to Y$ as K$ increases, holding A$ constant?

Accepted Answer

Y increases at a decreasing rate

Question 4

Which policy would most effectively shift the per-worker production function upward, allowing more real GDP per hour worked for the same capital per hour worked?

Accepted Answer

Subsidizing research and development

Question 5

A country experiences rapid increases in capital per hour worked but little technological change. According to the economic growth model, what is likely to happen to its growth rate in real GDP per hour worked over time?

Accepted Answer

It will stagnate due to diminishing returns

Question 6

If a country’s per-worker production function is $$Y = A K$$^{0.5}$$ and A$ increases due to technological change, what is the effect on real GDP per hour worked for a given K$?

Accepted Answer

Y increases

Question 7

Which of the following best explains why technological change is crucial for sustaining long-run economic growth?

Accepted Answer

It allows economies to avoid diminishing returns to capital

Question 8

A country’s per-worker production function is $$Y = A K$$^{0.5}$$. If K$ increases from 4 to 16, by what factor does Y$ increase, holding A$ constant?

Accepted Answer

$$Y$$ increases by a factor of 2

Question 9

Which scenario would result in a movement along the per-worker production function, rather than a shift of the function?

Accepted Answer

An increase in capital per hour worked, holding technology constant

Question 10

If a country invests heavily in physical capital but neglects education and health, what is the likely long-term effect on its economic growth according to the model?

Accepted Answer

Growth will slow due to diminishing returns

Question 11

Which of the following is a plausible reason why the Soviet Union’s growth strategy of pursuing high rates of investment in capital eventually led to stagnation?

Accepted Answer

It experienced diminishing returns to capital without sufficient technological change

Question 12

If a country’s per-worker production function is $$Y = A K$$^{0.5}$$, and it doubles K$ from 10 to 20, what is the percentage increase in Y$, holding A$ constant?

Accepted Answer

About 41%

Question 13

Which factor is most likely to cause a shift upward in the per-worker production function, as shown in the diagram?

Accepted Answer

A new organizational method that increases output

Question 14

If a country’s per-worker production function is $$Y = A K$$^{0.5}$$, and A$ increases by 10%, what happens to Y$ for a given K$?

Accepted Answer

$$Y$$ increases by 10%

Question 15

Which of the following best describes the effect of compounding on economic growth rates over long periods?

Accepted Answer

Small differences in growth rates result in large differences in living standards

Long-Run Economic Growth: Sources and Policies – Study Notes

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