Figure 10-1

-Initially,the economy is at point B on Figure 10-1 above.According to the Solow model of growth,in the short run,the discovery of a cold fusion process which reduces the cost of energy by 50%,ceteris paribus,will shift the economy from ________.

Question

Figure 10-1
 
-Initially,the economy is at point B on Figure 10-1 above.According to the Solow model of growth,in the short run,the discovery of a cold fusion process which reduces the cost of energy by 50%,ceteris paribus,will shift the economy from ________.

Quizplus · Accepted Answer

According to the Solow model, an increase in technology (such as the discovery of cold fusion) will shift the production function upward, resulting in a higher output per unit of capital. As a result, the economy will move from point B to a new point along the new production function, such as point H, which has a higher per capita output without an increase in capital per capita. Therefore, option A is the best choice.

Figure 10-1 -Initially,the Economy Is at Point B on Figure 10-1 Above.According