In a small European country,it is estimated that changing the level of capital from $8 million to $10 million will increase real GDP from $2 million to $3 million.What level of GDP would you expect the economy to be able to reach if spending on capital continued to rise to $12 million,assuming no technological change and no change in the hours of work?
A)GDP would increase further,but by less than $1 million.
B)GDP would increase further by exactly $1 million.
C)GDP would increase further by more than $1 million
D)GDP would increase further by exactly $4 million.

Question

Quizplus · Accepted Answer

Based on the given information, increasing capital from $8 million to $10 million led to an increase in real GDP from $2 million to $3 million. This represents an increase in GDP of $1 million. If capital spending continues to rise to $12 million, we can expect further GDP growth. However, the increase in GDP is likely to be less than $1 million since the initial increase in GDP was only $1 million when capital spending went from $8 million to $10 million. Therefore, choice A is the best answer. Choice B is incorrect, as it assumes that GDP growth will be exactly $1 million, which is unlikely. Choice C is also incorrect, as it assumes that the increase in capital spending will have a larger impact on GDP than the previous increase from $8 million to $10 million. Choice D is incorrect, as it assumes that the increase in capital spending will have a much larger impact on GDP than what has been observed in the previous increase.

In a Small European Country,it Is Estimated That Changing the Level