Answer to Question 1
Education raises the level of human capital in an economy. Human capital is the accumulated knowledge and skills that workers acquire from education and training or from their life experiences. Human capital raises a worker's productivity. The increase in productivity increases growth, per capita GDP, and standards of living. Human capital is one of the main sources of technological change. One of the lessons of the economic growth model is that technological change is more important for raising productivity than are increases in capital. It is an important ingredient for rapid economic growth.
The government's role in promoting investment in human capital is important, as the market might not provide the optimal amount of investment in human capital. Nobel laureate Robert Lucas argues that there are increasing returns to investments in human capital. These returns are not entirely captured by the individual, so if left to their own devices, individuals may not invest enough in education. Having the government invest in education will provide the country with a higher and more efficient level of education and training.
Answer to Question 2
C
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