JonnyKay

The new growth theory contends that economic growth is a function of which of the following two economic variables?

A) The subsistence real wage and real interest rates.

B) Real interest rates and technological change.

C) The creation of knowledge capital and real interest rates.

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The new growth theory holds that productivity growth is a function of society’s ability to discover new products and methods (i.e., the creation of knowledge capital), and real interest rates.

JonnyKay

Which of the following concepts is uniquely associated with the new theory of economic growth?

A) Increased spending on health care and population growth.

B) Real gross domestic product (GDP) growth based on investment in new capital and technological change.

C) No diminishing returns to knowledge capital.

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Knowledge capital is a special type of public good because it is not subject to the law of diminishing returns. This is a key element of new growth theory. The implication is that, unlike the classical or neoclassical growth theories, economic growth is not limited.

JonnyKay

Which of the following concepts is uniquely associated with the neoclassical theory of economic growth?

A) Opportunity cost of having children.

B) No diminishing returns to knowledge capital.

C) Real GDP growth.

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Neoclassical economists argue that the most important economic influence on population growth is the opportunity cost to women for entering the workplace. As real wages for women rise and their job opportunities expand, the opportunity cost of staying home and raising children increases. As the opportunity cost of having children increases, birth rates decline, and population growth slows.

JonnyKay

Which of the following concepts is uniquely associated with the neoclassical theory of economic growth?

A) Opportunity cost of having children.

B) No diminishing returns to knowledge capital.

C) Real GDP growth.

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Neoclassical economists argue that the most important economic influence on population growth is the opportunity cost to women for entering the workplace. As real wages for women rise and their job opportunities expand, the opportunity cost of staying home and raising children increases. As the opportunity cost of having children increases, birth rates decline, and population growth slows.

JonnyKay

While having lunch with a group of friends, Francine Lenser, CFA, was overheard saying the following: “The recent boom in technological advances should keep the economy growing. Whenever the economy slows, someone will come along with a bold new idea that kick-starts it.”
Lenser’s statement most accurately reflects the:

A) exogenous growth theory.

B) new growth theory.

C) neoclassical growth theory.

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Lenser’s statement is a decent layman’s description of the new growth theory, also known as the endogenous growth theory. This theory argues that economic growth can continue indefinitely as long as technological advances are made.