Question

Read the given case study and answer the question.

Traditional economic theory viewed capital in physical terms only. Economists during the late 1950s based on the aggregate production function found that the standard measures of simple labour and physical capital were incapable of explaining adequately the rapid post-war growth. Speculations on what was missing were diverse. Some argued that the principal explanation lays in the lack of appropriate adjustments for improvement in the quality of physical capital and the embodiment of technical progress in that capital. Others suggested that the most important omission pertains to the organisational advance or a vaguely specified human capital. The residual of unexplained growth was at first ascribed to technology by Solow, but later, the residual was defined to include improvements in the quality of capital can the investment in human beings. Human capital is formed with improvement in skills education. Improved health and education is merit as well as a public good and is associated with a large number of externalities which are often indirect, indivisible and non-quantifiable.

Standard economic theories failed to explain the post war rapid growth due to ______.

पर्याय

• Measuring growth in terms of physical inputs only.

• Ignoring other important factors such as improved skills and education.

• Both measuring growth in terms of physical inputs only and Ignoring other important factors such as improved skills and education.

• None of the above

Answer 1

Both measuring growth in terms of physical inputs only and Ignoring other important factors such as improved skills and education.