We know that output per worker (Y/N) will increase when which of the following occurs?
A) A decrease in K/N.
B) An increase in N.
C) A decrease in K.
D) An increase in K.
E) A decrease in the saving rate.

Question

Quizplus · Accepted Answer

According to the Cobb-Douglas production function, output per worker (Y/N) is a function of capital per worker (K/N) and labor productivity (A). Therefore, an increase in K/N will result in an increase in Y/N. Similarly, a decrease in K/N will lead to a decrease in Y/N. Choices A and C imply a decrease in K or K/N, thus, not the best choices. An increase in N alone without an accompanying increase in K will not have a significant impact on Y/N. Choice E involves a decrease in the saving rate, which may affect capital accumulation, but it is not a direct determinant of output per worker (Y/N).

We Know That Output Per Worker (Y/N) Will Increase When