1) What is the implication of the diminishing returns to physical capital for the economic growth of different countries over time?

(Hint: think about what is predicted to happen to the gap between rich and poor countries). Use examples of countries where this implication seems to be confirmed in the data as well as those that contradict this implication.

2) Compare and contrast human capital, H, and physical capital, K. How is H different from labour, L?

3) Indicate whether the following statement is TRUE or FALSE and explain your answer: 'Consider three inputs of production: labour, physical capital and natural resources, and an economy with decreasing returns to scale. If you increase all three inputs x times then the total gross domestic product (GDP) in the economy will increase exactly x times, but GDP per capita will decrease.'

4) MULTIPLE CHOICE (identify the one best answer and provide explanations): Consider an economy in which each worker has one machine and one unit of natural resources. Assume these inputs are fixed, and so is the worker's human capital. But there has been an improvement in technology. We can surely conclude that productivity has increased if:

a. the number of goods and services produced from each hour of the worker's time increases.

b. the number of goods and services produced by the worker increases relative to a worker in another country.

c. if the number of goods and services produced by the worker in a given year increases.

d. all of the above. e. none of the above.