Question 1

Which of the following best describes the concept of diminishing returns as it applies to the per worker production function?

Accepted Answer

As more capital is added per worker, each additional unit of capital results in smaller increases in output, holding technology constant.

Question 2

Suppose a country increases its capital per worker while holding technology constant. According to the per worker production function, what is the likely outcome?

Accepted Answer

Real GDP per hour worked will increase, but by smaller and smaller amounts with each additional unit of capital.

Question 3

Which of the following statements about technological change is correct?

Accepted Answer

Technological change does not experience diminishing returns.

Question 4

According to New Growth Theory, what is the primary driver of long-run economic growth?

Accepted Answer

Technological change influenced by economic incentives.

Question 5

Why is knowledge capital considered a public good in the context of economic growth?

Accepted Answer

It is nonrival and nonexcludable, meaning one person's use does not reduce availability to others and it is difficult to prevent others from using it.

Question 6

Which of the following is an example of 'free riding' in the context of knowledge capital?

Accepted Answer

A company benefits from a new technology developed by another firm without paying for its development.

Question 7

How do patents and copyrights help promote economic growth?

Accepted Answer

They provide incentives for innovation by granting temporary exclusive rights to creators.

Question 8

Suppose the government increases subsidies for education. According to the study materials, what is the likely long-run effect on economic growth?

Accepted Answer

It will increase economic growth by raising the level of knowledge capital.

Question 9

Which of the following best explains the 'catch-up' effect in economic growth?

Accepted Answer

Countries with lower initial levels of capital per worker tend to grow faster than those with higher initial levels, due to higher marginal returns to capital.

Question 10

A country is experiencing stagnant economic growth despite increasing its capital per worker. According to the per worker production function, what is the most likely explanation?

Accepted Answer

The country is experiencing diminishing returns to capital and needs technological change to boost growth.

Question 11

If the production function for an economy is given by $$ Y = A K$$^{0.5}$$ L$$^{0.5}$$ $$, where $$Y is $$output, $$A is $$technology, $$K is $$capital, and $$L is $$labor, what happens to output if $$K$$ doubles and $$A$$ and $$L$$ remain constant?

Accepted Answer

Output increases by a factor of $$ \sqrt{2} .$$

Question 12

Which policy would most directly address the problem of free riding in the creation of new technologies?

Accepted Answer

Granting patents to inventors.

Question 13

Suppose a government wants to increase the rate of technological change in its economy. Which of the following would be the most effective policy?

Accepted Answer

Subsidizing research and development activities.

Question 14

If knowledge capital is nonrival and nonexcludable, what is the likely result at the economy-wide level?

Accepted Answer

Increasing returns to scale.

Question 15

A firm invests heavily in research and development, but other firms quickly copy its innovations without paying. What economic problem does this illustrate?

Accepted Answer

Free riding.

Question 16

Which of the following equations best represents the per worker production function, holding technology constant?

Accepted Answer

$$ y = f(k) $$

Question 17

If a country wants to sustain long-run increases in its standard of living, which of the following is most essential according to the study materials?

Accepted Answer

Continuous technological change.

Question 18

Which of the following is NOT a government policy that can help increase knowledge capital?

Accepted Answer

Imposing tariffs on imported goods.

Question 19

A developing country is growing rapidly as it adopts existing technologies from advanced economies. This is an example of:

Accepted Answer

The catch-up effect.

Question 20

If the marginal product of capital is decreasing as more capital is added, which economic principle is being demonstrated?

Accepted Answer

Diminishing returns to capital.

Chapter 11: Long-Run Economic Growth – Key Concepts and Theories

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