Paul Romer's Theory of Economic Growth Differs from Traditional Theories

question 240

Multiple Choice

Paul Romer's theory of economic growth differs from traditional theories in that

• A) Romer argues that investment in capital goods is not important in encouraging growth while investment in human capital is, whereas traditional theorists emphasize both human and physical capital.
• B) Romer argues that investment in human capital always occurs before investment in physical capital, while traditional theories emphasize the priority of physical capital.
• C) Romer argues an investment-knowledge cycle can exist, but requires constant increases in investment rates, while traditional theories argue that investment rates can be constant.
• D) Romer argues an investment-knowledge cycle allows a one-time increase in investment to permanently increase a country's growth rate, while traditional theory argued such an investment would have only a short-term effect.

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Definitions:

Standard Labor Cost

The predetermined cost of the labor required to produce one unit of a product, considering factors like wage rates and productivity levels.

Direct Materials Data

Information regarding the raw materials used directly in the production of goods, crucial for cost accounting.

Standard Materials Price

The predetermined cost of materials that is used in setting a product's budget and evaluating its actual cost performance.

Finished Product

A good that has completed the manufacturing process and is ready to be sold to customers.