The aggregate production function of Ritland is Y = A × K⁰.³ × H⁰.⁷,where Y denotes total output,A denotes the level of technology,K denotes the physical capital stock,and H denotes the efficiency units of production.The total output produced in Ritland in a certain year was worth $135,000.The technology used in the country improved over the next 10 years,while the physical capital stock and the efficiency units of labor remained approximately the same.Which of the following is likely to be true in this case?
A) The GDP of the country is likely to increase.
B) The GDP of the country is likely to decrease.
C) The Human Development Index of the country is likely to improve.
D) The inflation rate in the country is likely to decrease.

Question

Quizplus · Accepted Answer

The aggregate production function shows that output is a function of technology, physical capital, and efficiency units of labor. In this case, physical capital and efficiency units of labor are assumed to remain the same. As the technology improves, the country will be able to produce more output for the same physical capital and labor inputs. Therefore, the GDP of the country is likely to increase. The other options (B, C, and D) do not necessarily follow from the given information.

The Aggregate Production Function of Ritland Is Y = a ×