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New Growth Theory quiz

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  • What is the main focus of New Growth Theory in explaining economic growth?
    New Growth Theory focuses on technology and knowledge capital as the key drivers of economic growth.
  • How does technological change affect productivity according to New Growth Theory?
    Technological change increases productivity growth by introducing new ways to produce more efficiently.
  • What is knowledge capital in the context of New Growth Theory?
    Knowledge capital is the amount of knowledge and technology available in the economy, distinct from human capital.
  • How can firms increase their knowledge capital?
    Firms can increase their knowledge capital by investing in research and development (R&D).
  • What is the difference between physical capital and knowledge capital in terms of returns?
    Physical capital experiences diminishing returns, while knowledge capital can generate increasing returns.
  • Why does knowledge capital lead to increasing returns?
    Because knowledge is a public good, its benefits can spread throughout the economy, allowing both firms and the economy to grow.
  • What are the two main characteristics of a public good?
    A public good is non-rival (one person's use doesn't reduce availability to others) and non-excludable (it's hard to prevent others from using it).
  • How does the concept of free-riding relate to knowledge capital?
    Free-riding occurs when firms benefit from the knowledge created by others without directly contributing to its development.
  • What role do patents play in New Growth Theory?
    Patents give inventors exclusive rights to their inventions for a limited time, incentivizing innovation by protecting profits.
  • How long does a typical patent last in the United States?
    A typical patent lasts for 20 years in the United States.
  • What happens to patented knowledge after the patent expires?
    After the patent expires, the knowledge becomes a public good and can be used by others.
  • Besides patents, how can governments encourage the accumulation of knowledge capital?
    Governments can offer subsidies, grants, or tax breaks to support research and development.
  • How does subsidizing education contribute to economic growth in New Growth Theory?
    Subsidizing education increases human capital, making research and development more productive and likely to result in technological breakthroughs.
  • Why is knowledge capital considered non-rival and non-excludable?
    Because one person's use of knowledge doesn't prevent others from using it, and it's difficult to stop others from accessing it once it's available.
  • What is the overall implication of New Growth Theory for long-run economic growth?
    New Growth Theory suggests that policies promoting technology and knowledge capital can sustain long-run economic growth.