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.

Question

Quizplus · 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.

Two Countries,Baltonia and Polonia,have Aggregate Production Functions in the Form