Question 1

In the long run, a higher saving rate

Accepted Answer

The answer of In the long run, a higher saving...

Question 2

Other things the same, a country that increases its saving rate increases

Accepted Answer

Increasing the saving rate leads to an increase in investment, which in turn raises future productivity and future real GDP. Investment in physical and human capital through saving and investment activities results in increases in productivity, which leads to an increase in real GDP, as more goods and services are produced.

Question 3

All else equal, if there are diminishing returns and constant returns to scale, then what happens to productivity if capital and labor both increase but capital increases by more?

Accepted Answer

If there are diminishing returns and constant returns to scale, then increasing both capital and labor will eventually lead to lower productivity gains. However, if capital increases more than labor, this may shift the production function to a higher level of output, leading to an increase in productivity. Therefore, productivity will increase if capital increases by more than labor.

Question 4

If a country's saving rate increases, then in the long run

Accepted Answer

When a country's saving rate increases, it results in a higher investment rate, which leads to an increase in capital stock. This increase in capital stock leads to an increase in productivity, as there are more resources available for production. Additionally, increased investment and capital stock accumulation lead to higher levels of real GDP per person in the long run. Therefore, both productivity and real GDP per person are higher when a country's saving rate increases in the long run.

Question 5

Figure 25-1. On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L represents output (Y) per worker (L). 
-Refer to Figure 25-1. Choose a point anywhere on the curve and call it point A. If the economy is at point A in 2011, then it will definitely remain at point A in 2012 if, between 2011 and 2012,

Accepted Answer

The answer of Figure 25-1. On the horizontal axis, K/L...

Question 6

All else equal, if there are diminishing returns, then what happens to productivity if both capital and labor increase?

Accepted Answer

If there are diminishing returns, it means that the marginal productivity of each additional unit of capital or labor decreases as more units are added. Therefore, the effect on productivity of increasing both capital and labor depends on the specific situation and the extent of the decrease in marginal productivity. It is possible that productivity will still increase, but at a decreasing rate. It is also possible that productivity will remain unchanged or even decrease. Thus, none of the options are necessarily correct.

Question 7

Currently a country has real GDP per person of 500. Raising capital per worker by one would increase output per worker by 4. Other things the same, which of the following long-run combinations are consistent with the effects of this country increasing its saving rate?

Accepted Answer

Increasing saving rate would lead to an increase in capital stock and eventually increase the real GDP per person. Since raising capital per worker by one would increase output per worker by 4, increasing the capital stock by 5 would result in an increase of 20 units of output per worker. Therefore, if real GDP per person increases to 520, raising capital per worker by one would increase output per worker by 3, which is consistent with the initial effect of increasing capital stock. Option A is the only one that matches this criteria.

Question 8

Other things the same, a country that increases its savings rate will have

Accepted Answer

Increasing savings rate allows a country to accumulate more capital. With more capital, productivity and output will increase, leading to higher future real GDP per person.

Question 9

In the long run, a higher saving rate

Accepted Answer

The answer of In the long run, a higher saving...

Question 10

Country A and country B are the same except country A currently has more capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then

Accepted Answer

According to the diminishing returns principle, as more units of capital are added, the increase in output will eventually decrease. Therefore, country A, which already has more capital, will experience a lower increase in output compared to country B, as they both increase their capital by the same amount. Hence, output in country A will increase by less than in country B.

Question 11

According to the traditional view of the production function, which of the following values of the additions to output per worker would be consistent with moving from 5 to 6, and then from 6 to 7, and then from 7 to 8 units of capital per worker in that order?

Accepted Answer

According to the traditional view of the production function, the additions to output per worker decrease as more units of capital are added. The first addition from 5 to 6 units of capital per worker would result in an addition of 40 units of output per worker. The second addition from 6 to 7 units of capital per worker would result in a smaller addition of output per worker, which is 34 units. Finally, the addition from 7 to 8 units of capital per worker would result in an even smaller addition of output per worker, which is 32 units. Therefore, option C (40, 34, 32) is the correct answer. The other choices either do not show a decreasing trend or have incorrect values.

Question 12

Figure 25-1. On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L represents output (Y) per worker (L). 
-Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?

Accepted Answer

The curve represents the relationship between output per worker and capital per worker. As capital per worker increases, the marginal product of capital decreases, resulting in a curve that becomes flatter as it moves to the right. This is consistent with statement C, which describes diminishing returns to capital. Statements A and B may also be true, but they are not consistent with the shape of the curve.

Question 13

Figure 25-1. On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L represents output (Y) per worker (L). 
-Refer to Figure 25-1. The curve becomes flatter as the amount of capital per worker increases because of

Accepted Answer

As the amount of capital per worker increases, the curve becomes flatter indicating diminishing returns to capital. This means that each additional unit of capital added to the production process leads to a smaller increase in output.

Question 14

All else equal, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year,

Accepted Answer

If there are diminishing returns, then adding the same amount of capital will result in a diminishing increase in output. Therefore, the increase in output would have been greater in the previous year when the country first added 100 units of capital, and the increase in output this year will be less than that of last year due to the law of diminishing returns.

Question 15

Country A and country B both increase their capital stock by one unit. Output in country A increases by 10 while output in country B increases by 8. Other things the same, diminishing returns implies that country A is

Accepted Answer

Diminishing returns implies that as more and more units of capital are added, the additional output generated will decrease. Since adding one unit of capital in country A led to an increase in output by 10 units, but adding another unit of capital will generate a smaller increase in output (less than 10 units), Country A is experiencing diminishing returns. Therefore, it is poorer than Country B, which added one unit of capital and increased output by 8 units.

Question 16

On a production function, as capital per worker increases, output per worker

Accepted Answer

The answer of On a production function, as capital per...

Question 17

The slope of the production function with capital per worker on the horizontal axis and output per worker on the vertical axis

Accepted Answer

The answer of The slope of the production function with...

Question 18

In the long run, an increase in the saving rate

Accepted Answer

An increase in the saving rate leads to an increase in investment, which increases the capital stock. This increase in capital stock leads to an increase in productivity, which in turn raises the level of income. Thus, both productivity and income are raised in the long run with an increase in the saving rate.

Question 19

Figure 25-1. On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L represents output (Y) per worker (L). 
-Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?

Accepted Answer

The answer of Figure 25-1. On the horizontal axis, K/L...

Question 20

Country A and country B both increase their capital stock by one unit. Output in country A increases by 12 while output in country B increases by 15. Other things the same, diminishing returns implies that country A is

Accepted Answer

The answer of Country A and country B both increase...

Quiz 25: Production and Growth

In the long run, a higher saving rate

Other things the same, a country that increases its saving rate increases

All else equal, if there are diminishing returns and constant returns to scale, then what happens to productivity if capital and labor both increase but capital increases by more?

If a country's saving rate increases, then in the long run

All else equal, if there are diminishing returns, then what happens to productivity if both capital and labor increase?

Currently a country has real GDP per person of 500. Raising capital per worker by one would increase output per worker by 4. Other things the same, which of the following long-run combinations are consistent with the effects of this country increasing its saving rate?

Other things the same, a country that increases its savings rate will have

In the long run, a higher saving rate

Country A and country B are the same except country A currently has more capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then

According to the traditional view of the production function, which of the following values of the additions to output per worker would be consistent with moving from 5 to 6, and then from 6 to 7, and then from 7 to 8 units of capital per worker in that order?

Figure 25-1. On the horizontal axis, K/L represents capital (K) per worker (L) . On the vertical axis, Y/L represents output (Y) per worker (L) . -Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?

Figure 25-1. On the horizontal axis, K/L represents capital (K) per worker (L) . On the vertical axis, Y/L represents output (Y) per worker (L) . -Refer to Figure 25-1. The curve becomes flatter as the amount of capital per worker increases because of

All else equal, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year,

Country A and country B both increase their capital stock by one unit. Output in country A increases by 10 while output in country B increases by 8. Other things the same, diminishing returns implies that country A is

On a production function, as capital per worker increases, output per worker

The slope of the production function with capital per worker on the horizontal axis and output per worker on the vertical axis

In the long run, an increase in the saving rate

Figure 25-1. On the horizontal axis, K/L represents capital (K) per worker (L) . On the vertical axis, Y/L represents output (Y) per worker (L) . -Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?

Country A and country B both increase their capital stock by one unit. Output in country A increases by 12 while output in country B increases by 15. Other things the same, diminishing returns implies that country A is