Question

Problem set #3

1) What is human capital, and how is it different from strictly the quantity of workers available for work? Name three ways to increase a nation's human capital. Is an increase in the size of the labor force also an increase in the human capital? Explain your answer.

2) The Rule of 70 applies in any growth rate application. Let's say you have $1000 in savings and you have three alternatives for investing these funds. How long would it take to double your savings in each of these 3 accounts?

·        A savings account earning 1.5 % interest per year

·        A U.S. Treasury bond mutual fund earning 3.5% interest per year

·        A stock market mutual fund earning 9% interest per year

3) Modern economic theory points to three sources of economic growth. What are these three sources? Give an example of each.

4)  Explain why a nation cannot continue to grow forever just by adding capital.

5)  The Solow model focus on how resources affect output. In this chapter, we focused on capital.

a. Name the other two major categories of resources

b. Draw an aggregate production function with a typical shape; label this function F. (label all curves and axis)

c. Draw a second production function that indicates a technological advancement; label this new function F1. (label all curves and axis)

Answer 1

1) Human capital refers to the skilled and knowledgable force that contributes to the company and country. Even though, there might be workers added to the company or the work force, it is not necessary that they are human capital. The human capital actually depends on the output that is provided. Hence, increase in labor force means that you have people who can work, however not necessary that their work will help you increase the output of the company. If they do, then they will be counted as human capital.

3) The three, sources of economic growth are:

a) Technology and Innovation

b) Human Capital

c) Natural Resources

4)  A nation cannot help itself to just keep growing while adding capital because of the application of law of diminishing marginal returns to factors. According to the law, as more and more capital is added to a given production process, then the marginal product from each additional unit of capital employed declines.

5) a) The two other major category of resources are Labor and Land.

b and c) Kindly find the labeled diagram below for both these questions.