Suppose an economy experience a 4% increase in each of the following variables: N,K,and H (human capital).Given this information,we know with certainty that
A)Y will increase by more than 4%.
B)Y will increase by exactly 4%.
C)Y will increase by less than 4%.
D)Y will increase by less than 12% but by more than 4%.
E) none of the above

Question

Quizplus · Accepted Answer

In the context of an economy, Y typically represents output or GDP. According to the Cobb-Douglas production function, output (Y) is a function of labor (N), capital (K), and human capital (H), among other factors. An increase in any of these inputs generally leads to an increase in output. However, due to diminishing returns and the way these inputs interact, the increase in Y is unlikely to be exactly proportional to the increases in N, K, and H. Therefore, if N, K, and H each increase by 4%, Y is expected to increase but not exactly by 4% or by the sum of the increases (12%). The correct answer suggests that Y will increase by more than 4% because all inputs are increasing, enhancing productivity and output, but by less than 12% due to the non-linear relationship between inputs and output.

Suppose an Economy Experience a 4% Increase in Each of the Following