In a small Asian country, it is estimated that changing the level of capital from $8 million to $12 million will increase real GDP from $4 million to $6 million.What level of GDP would you expect the economy to be able to reach if spending on capital continued to rise to $16 million, assuming no technological change and no change in the hours of work?
A)GDP would increase further, but by less than $2 million.
B)GDP would increase further by exactly $2 million.
C)GDP would increase further by more than $2 million.
D)GDP would increase further by exactly $8 million.
E)GDP would increase further by more than $8 million.

Question

Quizplus · Accepted Answer

The relationship between capital and GDP is subject to diminishing returns. As capital increases from $8 million to $12 million, GDP increases by $2 million. Further increases in capital will result in smaller increments in GDP, so the increase will be less than $2 million.

In a Small Asian Country, It Is Estimated That Changing