Question 1

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 2

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, eventually diminishing returns to capital set in, causing a flattening of the curve. Therefore, the correct answer is C, diminishing returns to capital.

Question 3

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 4

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

The law of diminishing returns states that as more units of a variable input are added to a fixed input, at some point the marginal product of the variable input declines. Therefore, since country A already has more capital, the increase of 100 units will result in a smaller marginal product compared to country B. As a result, the increase in output for country A will be smaller than that of country B.

Question 5

The traditional view of the production process is that capital is subject to

Accepted Answer

According to the traditional view of the production process, as more and more units of a variable input (such as labor) are added to a fixed input (such as capital), the marginal product of the variable input will eventually start to diminish. This means that the production process will experience diminishing returns to capital.

Question 6

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

Moving from 5 to 6 units of capital per worker in the traditional production function results in a diminishing marginal product of capital, so using the formula MPK = ∆F / ∆K, the addition to output per worker would be 40. Moving from 6 to 7 units of capital per worker also results in a diminishing marginal product of capital, so the addition to output per worker would be less than 40. Using the formula again with the change in capital from 6 to 7 units, the addition to output per worker is 34. Similarly, moving from 7 to 8 units of capital per worker also results in a further decrease in the marginal product of capital, so the addition to output per worker would be less than 34. Therefore, the only choice consistent with these values is C.

Question 7

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 represents...

Question 8

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 represents...

Question 9

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 the increase in output for each additional unit of capital will decrease. Therefore, the increase in output from the first 100 units of additional capital will be greater than the increase in output from the second 100 units of additional capital. As a result, the increase in output was greater last year than this year.

Question 10

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 constant returns to scale, then an increase in both capital and labor should result in a proportional increase in productivity. However, if there are diminishing returns to capital, then an increase in capital while holding labor constant will result in a smaller increase in productivity compared to an increase in both capital and labor. Therefore, if capital increases by more than labor, there may still be an overall increase in productivity, but it will not be as large as if both inputs had increased by the same amount. The resulting increase in productivity will, therefore, be less than proportional, but still positive.

Question 11

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...

Question 12

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

Accepted Answer

Increasing the savings rate leads to higher investment, which contributes to an increase in future capital. Higher capital, in turn, leads to higher labor productivity and, ultimately, higher future real GDP per person.

Question 13

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit?

Accepted Answer

Diminishing returns means that as more units of one factor (capital) are added, the additional output gained from each additional unit will eventually decrease. Therefore, when a country increases its capital by one unit, output will still rise but by less than it did with the previous unit addition.

Question 14

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

Accepted Answer

An increase in the saving rate means that people are saving more money which can be invested in capital goods. This increase in investment in capital goods will, in the long run, increase productivity, leading to an increase in real GDP per person. Therefore, productivity and real GDP per person are both higher.

Question 15

"When workers have a relatively small quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity by a relatively large amount." This statement

Accepted Answer

The statement implies that when capital is relatively scarce, workers are operating in the region of diminishing returns to capital. Increasing their capital stock by one unit will therefore have a relatively large effect on worker productivity. This is consistent with the view that capital is subject to diminishing returns. The statement is not an assertion that production functions have the property of constant returns to scale, so choice A is incorrect. The statement is also silent on the issue of whether it is easier for a country to grow fast if it starts out relatively poor, so choice C is incorrect.

Question 16

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, the impact of increasing both capital and labor on productivity depends on how much each factor is increased and the point at which diminishing returns set in. It is possible that productivity may still increase, but at a decreasing rate, or productivity may remain constant, or productivity may decrease. Therefore, none of the options A, B, or C are necessarily correct.

Question 17

If there are diminishing returns to capital, then

Accepted Answer

The answer of If there are diminishing returns to capital,...

Question 18

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 shape of the curve showing diminishing marginal productivity of capital (i.e. the curve becomes flatter as K/L increases) is consistent with option C, which states that returns to capital become increasingly smaller as the amount of capital per worker increases. This is a key concept in the Solow model of economic growth, which shows that in the long run, increases in the saving rate lead to higher levels of capital per worker, but not to sustained growth in output per worker. Option A is incorrect because the curve does not show a direct relationship between the saving rate and productivity growth. Option B is incorrect because the curve does not show a direct relationship between the saving rate and income growth.

Question 19

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

Accepted Answer

When a country increases its saving rate, it increases the amount of funds available for investment. This leads to increased investment in physical capital (machinery, equipment, factories) which increases productivity. With increased productivity, future real GDP will also increase. Therefore, increasing the saving rate will result in both increased future productivity and future real GDP.

Question 20

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...

Quiz 12: Production and Growth

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

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

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

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

The traditional view of the production process is that capital is subject to

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?

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,

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?

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

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

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit?

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

"When workers have a relatively small quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity by a relatively large amount." This statement

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

If there are diminishing returns to capital, then

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?

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

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