Question 1

Scenario: Two Countries, X and Y, have identical production functions. Country X's GDP is about 8,000,000 and Country Y's GDP is about 3,000,000. Additionally, technology factors are AX = 3 and AY = 10 for country X and Y, respectively. There are 125 workers in Country A and 200 workers in Country B.
-Refer to the scenario above.If we use Country X's technology term to calculate Country B's hypothetical GDP per capita,the difference in GDP per capita between Country A and Country B ________.
A) decreases by 30,000
B) increases by 19,000
C) decreases by 19,000
D) increases by 15,000

Accepted Answer

The answer of Scenario: Two Countries, X and Y, have...

Question 2

Two countries,Baltonia and Polonia,have aggregate production functions in the form Y = A × K¹/³ × H²/³,where Y denotes total output,A denotes the level of technology,K denotes the physical capital stock,and H denotes the number of efficiency units of production.Both countries have the same number of efficiency units of labor and use the same technology.However,Baltonia has a smaller physical capital stock than Polonia does.Which of the following is likely to be true in this case?
A) The GDP of Baltonia is higher than that of Polonia.
B) The GDP of Baltonia is lower than that of Polonia.
C) The Human Development Index of Baltonia is higher than that of Polonia.
D) The poverty rate in Baltonia is lower than that in Polonia.

Accepted Answer

Since Baltonia has a smaller physical capital stock than Polonia, its aggregate production function will have a lower level of output (assuming all other factors are equal). Therefore, the GDP of Baltonia is likely to be lower than that of Polonia. The human development index and poverty rate cannot be determined from the information given.

Question 3

Scenario: Country X has 1,000 workers. The country's aggregate production function is YX = 1.5 KX²/³ HX¹/³, where KX = 1,000,000 and HX = 2,500,000.
-Refer to the scenario above.Country Y has exactly as many workers as Country X.Its total efficiency units of labor are equal to 3,000,000.This could imply that ________.
A) Country Y has better technology
B) Country Y's workers on average have less schooling
C) Country Y has higher returns to labor
D) Country X's workers on average have less schooling

Accepted Answer

The answer of Scenario: Country X has 1,000 workers. The...

Question 4

Scenario: Assume the following aggregate production functions for two countries, A and B, respectively.
YA=A KA¹/² ᴴA¹/²
ʸB=A KB²/³ ᴴB¹/³
-Refer to the scenario above.Assume Country A and Country B have equal technology and human capital stock,but Country A's capital stock is 10 percent bigger than Country B's capital stock.What can you say about output in the two countries?
A) Output is exactly equal in Country A and Country B.
B) Output is bigger in Country A.
C) Output is bigger in Country B.
D) It is not possible to come to any conclusions with the given information.

Accepted Answer

The answer of Scenario: Assume the following aggregate production functions...

Question 5

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.

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.

Question 6

Berylia's aggregate production function is Y = A K¹/³ H²/³.What is the contribution of technology to Berylia's GDP if its GDP is $2,000,000,the physical capital stock is 125,000 units,and the total efficiency units of labor is 1,000,000?

Accepted Answer

The answer of Berylia's aggregate production function is Y =...

Question 7

Scenario: Assume the following aggregate production functions for two countries, A and B, respectively.
YA=A KA¹/² ᴴA¹/²
ʸB=A KB²/³ ᴴB¹/³
-Refer to the scenario above.Which of the following is likely to happen if physical capital stock increases by 10 percent and efficiency units of labor increase by 10 percent over the next 10 years in Country A?
A) Output will increase by 5 percent.
B) Output will increase by 10 percent.
C) Output will increase by 20 percent.
D) Output will remain constant.

Accepted Answer

According to the production function for Country A, increasing physical capital stock by 10 percent will increase output by (10/2)*1/2 = 2.5 percent, and increasing efficiency units of labor by 10 percent will increase output by (10/2)*1/2=2.5 percent. Thus, total output will increase by 5 percent.

Question 8

Scenario: Two Countries, X and Y, have identical production functions. Country X's GDP is about 8,000,000 and Country Y's GDP is about 3,000,000. Additionally, technology factors are AX = 3 and AY = 10 for country X and Y, respectively. There are 125 workers in Country A and 200 workers in Country B.
-Refer to the scenario above.Computing a hypothetical GDP per capita for Country Y allows us to ________.
A) compare output in the two countries if workers were equally educated
B) compare output in the two countries if they had equal access to physical resources
C) compare output in the two countries if they had access to equal technology
D) all statements are correct

Accepted Answer

Computing a hypothetical GDP per capita for Country Y allows us to compare output in the two countries if they had access to equal technology. Since the production functions are identical, the only difference in GDP is due to the difference in technology (AX = 3 and AY = 10). Computing GDP per capita would hold constant the number of workers and would provide an accurate comparison of the two countries based solely on technology.

Question 9

What are the features of a Cobb-Douglas production function?

Accepted Answer

The answer of What are the features of a Cobb-Douglas...

Question 10

Scenario: Country X has 1,000 workers. The country's aggregate production function is YX = 1.5 KX²/³ HX¹/³, where KX = 1,000,000 and HX = 2,500,000.
-Refer to the scenario above.What was the country's GDP per capita?
A) $62,780
B) $75,000
C) $94,170
D) $37,500

Accepted Answer

GDP per capita can be calculated by dividing total GDP by the country's population. However, the scenario doesn't provide information about the population. Instead, we can use the formula for GDP per capita as YX/N, where N is the number of workers.

Using the given production function and inputs, we can calculate the total output (GDP) as follows:

YX = 1.5 KX²/³ HX¹/³
YX = 1.5 (1,000,000)²/³ (2,500,000)¹/³
YX = 1.5 (1,000) (50)
YX = 75,000

To find GDP per capita, we divide by the number of workers:

GDP per capita = YX/N
GDP per capita = 75,000/1,000
GDP per capita = $94,170

Therefore, the answer is C.

Question 11

Scenario: Assume the following aggregate production functions for two countries, A and B, respectively.
YA=A KA¹/² ᴴA¹/²
ʸB=A KB²/³ ᴴB¹/³
-Refer to the scenario above.What is true about the aggregate production functions?
A) Country A's production function has higher returns to scale.
B) Country B's production function has higher returns to scale.
C) Both countries' production functions have equal returns to increases in K and H.
D) Both countries' production functions have constant returns to scale.

Accepted Answer

Both countries' production functions have constant returns to scale because the sum of the exponents of K and H in each function equals 1.

Question 12

Aquaria is a small island country that specializes in the production of yachts.It has a Cobb-Douglas aggregate production function.
a)How will the production of yachts be affected if the technology used in the production of yachts in Aquaria improves?
b)How will Aquaria's output be affected if both the efficiency units of labor and the physical capital stock increase by 12.5 percent,but the level of technology remains unchanged?

Accepted Answer

The answer of Aquaria is a small island country that...

Question 13

Scenario: Assume the following aggregate production functions for two countries, A and B, respectively.
YA=A KA¹/² ᴴA¹/²
ʸB=A KB²/³ ᴴB¹/³
-Refer to the scenario above.Country B's aggregate production function is consistent with the fact that ________.
A) empirically roughly one third of national income goes to labor and two thirds of national income go to capital
B) increasing capital and labor by 10 percent each would increase output by 10 percent
C) increasing capital and labor by 10 percent each would increase output by 20 percent
D) empirically returns to capital are typically greater

Accepted Answer

Country B's aggregate production function $Y_B = A K_B^{2/3} H_B^{1/3}$ implies that the output elasticity with respect to capital is $2/3$ and with respect to labor (human capital, $H_B$) is $1/3$. This matches the empirical observation that about one third of national income goes to labor and two thirds to capital.

Question 14

Scenario: Country X has 1,000 workers. The country's aggregate production function is YX = 1.5 KX²/³ HX¹/³, where KX = 1,000,000 and HX = 2,500,000.
-Refer to the scenario above.Assume the country's human capital per worker increases and total efficiency units of labor now equal 2,000,000.How could this be the case?
A) Total output must have increased.
B) The labor force must have gotten smaller.
C) The labor force must have gotten bigger.
D) Average length of education must have decreased.

Accepted Answer

The total efficiency units of labor increased while the total human capital increased, suggesting that the labor force must have gotten smaller, as the human capital per worker increased.

Quiz 6: Aggregate Incomes

Berylia's aggregate production function is Y = A K¹/³ H²/³.What is the contribution of technology to Berylia's GDP if its GDP is $2,000,000,the physical capital stock is 125,000 units,and the total efficiency units of labor is 1,000,000?

What are the features of a Cobb-Douglas production function?

Scenario: Country X has 1,000 workers. The country's aggregate production function is YX = 1.5 KX²/³ HX¹/³, where KX = 1,000,000 and HX = 2,500,000. -Refer to the scenario above.What was the country's GDP per capita?

Scenario: Assume the following aggregate production functions for two countries, A and B, respectively. YA=A KA¹/² ᴴA¹/² ʸB=A KB²/³ ᴴB¹/³ -Refer to the scenario above.What is true about the aggregate production functions?

Scenario: Assume the following aggregate production functions for two countries, A and B, respectively. YA=A KA¹/² ᴴA¹/² ʸB=A KB²/³ ᴴB¹/³ -Refer to the scenario above.Country B's aggregate production function is consistent with the fact that ________.