If a neutral technological advance improves the production function, the neoclassical theory of distribution predicts:
A) the real wage will rise and the real rental price of capital will fall.
B) both the real wage and the real rental price of capital will fall.
C) both the real wage and the real rental price of capital will rise.
D) the real wage will fall and the real rental price of capital will rise.

Question

Quizplus · Accepted Answer

A neutral technological advance improves productivity without favoring labor or capital specifically, leading to an increase in output. This generally allows for higher payments to both labor (real wages) and capital (real rental price), as the overall economic pie has grown.

If a Neutral Technological Advance Improves the Production Function, the Neoclassical