Economic Growth Review

The U.S. government provides a research and development tax credit. How can this policy encourage economic growth?

• Firms get tax credits for sourcing inputs locally, and this encourages local economic growth.

• It encourages firms to engage in innovation and creative practices, which lead to technological advances that spur economic growth.

• It supports firms in their efforts to produce environmentally friendly products and services.

• Firms are encouraged to reuse existing capital, and this leads to a more efficient use of existing capital.

Physical capital refers to:

• the money available for purchasing tools and machinery.

• workers who work in fixed production lines.

• workers in factories.

• tools, machinery, and structures.

If a bakery buys a second oven, hires a second baker, buys double the number of ingredients, doubles the size of the bakery, and then produces double the number of cakes, then the bakery is experiencing:

• technological advancement.

• an increase in labor productivity.

• constant returns to scale.

• increasing returns to scale.

In Malaysia, the Community Communications Development Program teaches computer literacy skills to people in rural communities, especially women. This initiative is an example of a project that will:

• enhance human capital.

• build capital stock.

• increase the dependency ratio.

• lower the capital stock over time.

The law of diminishing returns means that:

• additional investments in physical capital will significantly boost output in wealthy countries with already existing large capital stocks.

• the economic growth rates of wealthier countries must always exceed the economic growth rates of poorer countries.

• additional investments in physical capital are not as productive as additional investments in human capital.

• additional investments in physical capital do not boost output much in wealthy countries with already existing large capital stocks.

Human capital refers to improvements in:

• production processes, made possible by better machines and equipment.

• technology made available to the workforce.

• a worker’s skills, made possible by education, training, and knowledge.

• robotics technology that can substitute for human workers.

Workers today are more productive than workers in the past because they:

• have better technology

• work longer hours

• are more motivated

• have more education

Because of diminishing returns to physical capital, doubling the amount of physical capital available to one worker will increase GDP per worker by ________ a factor of 2.

• more than

• less than

• exactly

The sources of funds for investment spending are:

• savings by households, the government, and foreigners.

• taxes and transfer payments.

• always equal to U.S. spending on imports.

• directed to their most productive uses by the U.S. government.

The aggregate production function can be represented as:

• Y = f(L, H, K).

• K = f(L, H, Y).

• L = f(Y, H, K).

• H = f(L, Y, K).