Question 1

New growth theory predicts that

Accepted Answer

New growth theory asserts that economic growth can continue indefinitely, unlike earlier theories that posited a limit to growth due to diminishing returns or depletion of resources. New growth theory emphasizes the role of knowledge and technology in driving economic growth and posits that policies promoting research and development, human capital formation, and innovation can lead to sustained growth.

Question 2

New growth theory economists believe that:
I. Economic growth can continue as long as we keep finding new ideas.
II. The marginal product of capital diminishes very rapidly, so we must rely upon technological ad to create economic growth.

Accepted Answer

New growth theory emphasizes the role of ideas, innovation, and knowledge in driving economic growth, suggesting that growth can continue with the discovery of new ideas. It does not primarily focus on the diminishing returns of capital as a constraint.

Question 3

Which theory emphasizes the significance of new discoveries that can be used by many people at the same time?

Accepted Answer

The theory that emphasizes the significance of new discoveries that can be used by many people at the same time is the new growth theory. This theory argues that technological progress, research and development, and human capital accumulation can drive sustained economic growth. It suggests that economic growth is not only driven by increases in capital and labor, as suggested by neoclassical growth theory and classical growth theory, but also by the introduction of new ideas and knowledge to the production process.

Question 4

In new growth theory, does not experience diminishing returns.

Accepted Answer

In new growth theory, knowledge capital does not experience diminishing returns. This is because knowledge can be shared and spread, leading to increased productivity and new ideas, which in turn leads to further economic growth. The other choices listed all have the potential to experience diminishing returns as the amount of labor or capital increases.

Question 5

predicts that real GDP per person can grow indefinitely.

Accepted Answer

New growth theory suggests that real GDP per person can grow indefinitely due to factors like technological innovation and knowledge accumulation, which are not subject to diminishing returns.

Question 6

According to new growth theory, technological change is driven by

Accepted Answer

According to new growth theory, firms invest in research and development and other forms of innovation in order to increase their profit and gain a competitive advantage in the market. This in turn drives technological change.

Question 7

Which of the following is NOT associated with the new growth theory?

Accepted Answer

The new growth theory focuses on the role of technological advance and innovation in promoting long-term economic growth. It emphasizes the importance of research and development as a key driver of productivity and output growth. However, it does not prioritize the role of natural resources in economic growth.

Question 8

According to the new growth theory, firms are more likely to devote funds to research and development when

Accepted Answer

The new growth theory suggests that firms are more likely to invest in research and development if they expect to earn profits from their innovations. This is because successful R&D can provide a competitive advantage and increase profits, leading firms to invest more in R&D to continue innovating and maintaining their competitive edge.

Question 9

According to new growth theory .

Accepted Answer

According to new growth theory, knowledge does not experience diminishing returns. This means that investing in knowledge and human capital can lead to constant or increasing returns, rather than eventually seeing diminishing returns like with physical capital.

Question 10

A central proposition of the new growth theory is that

Accepted Answer

The new growth theory proposes that knowledge is not subject to diminishing returns, meaning that the more knowledge and ideas that are created and applied in the economy, the more potential there is for continued economic growth. Therefore, choice C is the best answer.

Question 11

New growth theory proposes that real GDP per person grows because of and that growth
)

Accepted Answer

New growth theory suggests that the pursuit of profit drives innovation and technological advancements, leading to sustained economic growth.

Question 12

Because of the choices people make in the pursuit of profit, new growth theory argues that

Accepted Answer

New growth theory argues that the pursuit of profit leads to the development of new technologies and knowledge, thereby increasing productivity and economic growth. As long as the incentives for innovation remain strong, the economy can enjoy a period of indefinite growth.

Question 13

The notion that technological change is not random but instead is driven by the pursuit of profits is an essential element of

Accepted Answer

The notion that technological change is driven by the pursuit of profits is a key feature of the new growth theory. This theory argues that technological progress and innovation can be stimulated by market competition and the desire for firms to attain monopoly power and earn higher profits.

Question 14

New growth theory

Accepted Answer

The new growth theory states that economic growth arises from people's choices, such as investment in research and development, education, and innovation. Population growth is not the primary source of economic growth according to this theory. The new growth theory emerged in the 1980s and 1990s, making C and D incorrect.

Question 15

New growth theory assumes that

Accepted Answer

New growth theory assumes that knowledge does not experience diminishing returns, meaning that investment in education, research, and development can continue to produce economic growth without limits. The other options are incorrect.

Question 16

According to the new growth theory

Accepted Answer

According to the new growth theory, knowledge is the key factor driving economic growth, and it is not subject to diminishing returns. This means that as more knowledge is created, it can lead to even more knowledge and growth, without reaching a point of saturation.

Question 17

An important foundation of the new growth theory is that

Accepted Answer

The new growth theory emphasizes the importance of incentives for innovation and technological progress. The theory suggests that individuals and firms will be more likely to engage in research and development and introduce new technologies if they can expect to receive higher returns and profits from their efforts. This implies that greater rewards lead to more technological advances, as stated in option C. Option A is incorrect since improvements in labor productivity are one measure of technological growth. Option B is incorrect as the growth rate of new knowledge is considered more important than the growth of physical capital in the new growth theory. Option D is incorrect as the new growth theory does not suggest that government involvement in deciding which technology to pursue results in more technological advances.

Question 18

According to the new growth theory, competition

Accepted Answer

According to the new growth theory, competition reduces profit. This is because competition encourages firms to innovate and improve their products, which increases the quality of goods and lowers the price for consumers. Lower prices mean lower profits for firms, but the overall benefits to society are increased economic growth and higher consumer welfare.

Question 19

A key feature of the new growth theory is the assumption of

Accepted Answer

The new growth theory assumes that there is no diminishing returns to knowledge as knowledge can be shared and used by multiple individuals and firms, leading to increasing returns instead.

Question 20

Neoclassical growth theory predicts that

Accepted Answer

Neoclassical growth theory suggests that due to diminishing returns to capital and technological diffusion, poorer countries will grow faster than richer ones, leading to convergence in growth rates over time.

Quiz 6: Economic Growth