Question

The potential output of an economy depends on three factors: human capital, physical capital, and technology. For each item below, indicate whether it affects human capital, physical capital, or technology.

a. An improvement in adult literacy
b. An increase in the college student population
c. The development of smaller mp3 players
d. The acquisition of computers by companies
e. New distribution techniques

WORD BANK
human capital
physical capital
technology

Answer 1

a. human capital

b. human capital

c. technology

d. physical capital

e. technology

Step-by-step explanation:

Growth is generated by three main sources: growth of human capital, growth of physical capital, and technological advance. Human capital is the knowledge and skills of the workforce. While human capital need not be measured in schooling, years of education is a good proxy for the quantity of human capital in a society. However, literacy and continued education in one's career also contribute to a society's store of human capital.

Physical capital refers to the physical goods used to produce output. This includes machines, computers, factories, office building, etc. You may have been tempted to categorize computers as technology, but technology refers to the methods and techniques used in various human endeavors, including production. Once developed, a computer itself is a physical machine that helps in the production process.

Technology is the application of knowledge to achieve practical ends. Technological advance explains the increase in output that would be possible if human and physical capital were constant over time. Technological advance often arises from the growth of knowledge, e.g., of management techniques, chemical properties, programming structures, distribution techniques, communication networks, transportation methods, and so forth.