Understanding of Economic Concepts and Terms

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(a) Understanding of economic concepts and terms (maximum half-page) (3 MARKS)
TRUE/FALSE/MAYBE and EXPLAIN. According to Solow-Swan, it is impossible for a country
to maintain high growth rates in real GDP per capita (and per hour worked) with overall
diminishing returns to capital.

(b) Understanding and using economic theory and models (maximum one page) (4 MARKS)
Use the appropriate AD-AS model diagram and explanation to depict the following:
(a) An exogenous shock where equilibrium price level and real GDP move higher. (1 MARK)
(b) An exogenous shock where equilibrium price level and real GDP move in opposite directions.
(1 MARK)
(c) a rise in price level and real GDP without any exogenous shock. (2 MARKS)
Explain your answers briefly.

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