The price of a standard basket of goods in Country A is 10 pesos. The price of the same basket of goods in country B is 25 francs and $5 in the United States. Country A has an income per capita of 60,000 pesos, and country B has an income per capita of 100,000 francs. Assume full employment in both countries.
-Refer to the scenario above. Suppose Country A passes a law that requires all workers to complete repeated safety workshops. One year after the law was passed, workers are on average 5 percent less productive. Workers in Country B continue to produce at the same rate as the year before. During the same year, the population in Country A and in Country B increases by 2 percent. Consequently, 1 year after Country A passed the new law, ________.
A) workers in Country B on average are more productive than workers in Country A
B) GDP in Country A increases, but GDP in Country B may or may not increase
C) GDP per capita in Country A decreases, and GDP per capita in Country B increases
D) GDP per capita in Country A decreases, while GDP in Country A may or may not increase

Question

Quizplus · Accepted Answer

The decrease in productivity in Country A, combined with a population increase, would likely lead to a decrease in GDP per capita. However, GDP itself may or may not increase depending on other factors such as total output and economic growth.

The Price of a Standard Basket of Goods in Country