Question

Question 2

By Economic Growth we mean that:

1 The quality of the goods and services offered in the country is increasing.

2 The GDP per capita is growing from year to year.

3 There are more goods and services offered in the country.

4 The GDP is growing each year.

Question 3

Innovation is the key to economic growth because...

[Multiple correct answers]:

1 It allows greater output from the same labor and capital.

2 Many people can benefit from it simultaneously.

3 It has no decreasing marginal return (or it decreases only in the long run relative to capital and labor).

4 It allows higher productivity.

Answer 1

According to Modern theory of economic growth, the economic growth is possible through expenditure on research and development and thereby knowledge innovations.

Hence it can be said that according to the modern theory economic growth, the key component of economic growth is skilled labor which helps in the research and development and therefore innovations.

Since economic growth means an increase in the production of output in the economy compare to previous time period. The economic growth it is possible through more investment in the capital stock. So when capital investment increases, then production of goods and services increases, so the real GDP increases.

Economic growth in current year

=[(GDP current year- GDP previous year )/ GDP previous year ]*100

Hence it can be asserted that by Economic Growth we mean that the GDP is growing each year.

Hence option 4 is the correct answer.

3.

Since economic growth means an increase in the production of output in the economy compare to previous time period. The economic growth it is possible through more investment in the capital stock. So when capital investment increases, then production of goods and services increases, so the real GDP increases.

Economic growth in current year

=[(GDP current year- GDP previous year )/ GDP previous year ]*100

Labor productivity= total output/ number of labor

Hence it can be said that innovations leads to an increase in the productivity of both labor and capital.

Hence it can be said that Innovation is the key to economic growth because it allows greater output from the same labor and capital.

Hence option 1 is the correct answer.