Question 1

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

Accepted Answer

By increasing its saving rate, a country is able to accumulate more capital which leads to increased productivity and, therefore, increased real GDP in the future. This is because more capital allows for more goods and services to be produced, which increases productivity and output.

Question 2

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 units of capital are added, the marginal product of each additional unit decreases. Since country A's output only increased by 10 units with the addition of one unit of capital, adding another unit of capital will increase output by less than 10 units. Therefore, country A is poorer than country B, which had a greater increase in output with the same increase in capital.

Question 3

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

Accepted Answer

Increasing savings rate leads to more available funds for investment in the future, which increases capital stock. Higher capital stock then leads to higher future real GDP per person due to increased productivity and production capacity.

Question 4

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, each additional unit of capital leads to a smaller increase in output. Therefore, the increase in output from raising capital by 100 units last year would be greater than the increase in output from raising capital by another 100 units this year. So the increase in output was greater last year than this year.

Question 5

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

Accepted Answer

When a country's saving rate increases, it leads to increased investment in capital which in turn leads to an increase in productivity. This increase in productivity leads to an increase in real GDP per person. Therefore, both productivity and real GDP per person are higher in the long run.

Question 6

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 7

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 we increase one factor of production (in this case, capital) while holding all other factors constant, the increase in output will eventually start to diminish. In other words, the marginal product of capital (i.e. the additional output generated by one additional unit of capital) will decrease as we add more units of capital. Therefore, if a country increases its capital by one unit, the increase in output will still be positive but it will be less than the increase in output when the previous unit was added. This is because the country has already reached a level of capital where the marginal product is decreasing.

Question 8

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 9

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

The answer of Currently a country has real GDP per...

Question 10

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 will decrease as capital increases due to diminishing marginal returns. Moving from 5 to 6 units of capital per worker, we can assume that the additions to output per worker would be 40. However, moving from 6 to 7 units of capital per worker, the additions to output per worker would decrease due to diminishing marginal returns, and would therefore be less than 40. Choice C is the only answer choice that reflects a decrease in additions to output per worker as capital increases, with the values of 40, 34, 32 respectively.

Question 11

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 12

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 13

If there are diminishing returns to capital, then

Accepted Answer

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

Question 14

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 law of diminishing returns, as the amount of capital increases, the increase in output becomes smaller and smaller. Therefore, since country A already has more capital, the increase in output from adding an additional 100 units of capital will be less than the increase in output from adding 100 units of capital in country B. Therefore, output in country A will increase by less than in country B.

Question 15

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 16

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

The curve becoming flatter as the amount of capital per worker increases is due to diminishing returns to capital. As more capital is added, the additional output per worker becomes smaller and smaller, leading to a flatter curve. This is consistent with the law of diminishing returns, which states that as a variable input (in this case capital) is added to a fixed input (in this case labor), the marginal product of the variable input eventually decreases.

Question 17

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

Accepted Answer

The traditional view of the production process is that as more and more units of a variable factor are added to a fixed factor, the marginal product of the variable factor eventually declines. This leads to diminishing returns to capital, which is represented by a downward sloping marginal product curve.

Question 18

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 capital and labor on productivity is not certain. It could increase or decrease, depending on the extent of the diminishing returns. Therefore, neither A, B, nor C can be considered correct answers.

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 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 20

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.

Quiz 25: Production and Growth

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

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

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

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,

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

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 which of the following is true if a country increases its capital by one unit?

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

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?

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?

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

If there are diminishing returns to capital, then

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

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

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

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

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

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 and constant returns to scale, then what happens to productivity if capital and labor both increase but capital increases by more?