New growth theory states that increases in ________ capital will result in ________ at the ________ level.
A)knowledge; increasing returns to scale; firm
B)physical; decreasing returns to scale; firm
C)knowledge; decreasing returns to scale; economy
D)knowledge; increasing returns to scale; economy

Question

Quizplus · Accepted Answer

New growth theory suggests that increases in knowledge capital will lead to increasing returns to scale at the economy level. This is because knowledge capital is a non-rival and non-excludable resource, meaning that it can be shared and used by multiple individuals or firms without diminishing its value. As more individuals or firms use knowledge capital, the potential for innovation and productivity growth increases, and this effect can be amplified through network effects and positive externalities. However, if physical capital is increased, it may lead to diminishing marginal returns and result in decreasing returns to scale at the firm level (option B). While knowledge capital can also exhibit diminishing marginal returns, the nature of its non-rivalrous and non-excludable characteristics means that it may be less prone to this effect, and instead lead to increasing returns to scale at the economy level (option C is incorrect).

New Growth Theory States That Increases in ________ Capital Will