Question 1

All else equal, if there are diminishing returns, then what happens to productivity if both capital and labor increase?

Accepted Answer

Diminishing returns mean that as inputs (capital and labor) increase, productivity may initially increase, but eventually, the rate of increase in productivity will slow down. The actual effect on productivity will depend on how quickly the point of diminishing returns is reached and how steep the slope is after that point. Therefore, none of the choices are necessarily correct, as it depends on the specific context of the production process.

Question 2

Other things the same, a country that increases its saving rate increases

Accepted Answer

Increasing saving rate leads to higher investment which can lead to an increase in capital stock, technological advancements, and education, all of which improve productivity and thus future real GDP.

Question 3

The slope of the production function with capital per worker on the horizontal axis and output per worker on the vertical axis

Accepted Answer

The answer of The slope of the production function with...

Question 4

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit?

Accepted Answer

Diminishing returns means that each additional unit of input will produce less additional output compared to the previous unit. Therefore, if a country increases its capital by one unit, output will still increase but by less than it did when the previous unit was added.

Question 5

On a production function, as capital per worker increases, output per worker

Accepted Answer

The answer of On a production function, as capital per...

Question 6

Country A and country B both increase their capital stock by one unit. Output in country A increases by 12 while output in country B increases by 15. Other things the same, diminishing returns implies that country A is

Accepted Answer

The answer of Country A and country B both increase...

Question 7

Figure 25-1.
On the horizontal axis, K/L represents capital K) per worker L). On the vertical axis, Y/L represents output Y) per worker L). 
-Refer to Figure 25-1. The curve becomes flatter as the amount of capital per worker increases because of

Accepted Answer

As the amount of capital per worker increases, the curve becomes flatter due to diminishing returns to capital. This means that each additional unit of capital per worker results in a smaller increase in output per worker.

Question 8

Country A and country B are the same except country A currently has more capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then

Accepted Answer

According to the law of diminishing returns, the increase in output resulting from a one-unit increase in the capital stock decreases as the capital stock increases. Therefore, country B, with less capital to start with, will experience a greater increase in output from the additional 100 units of capital compared to country A. As a result, the increase in output in country A will be less than in country B.

Question 9

Figure 25-1.
On the horizontal axis, K/L represents capital K) per worker L). On the vertical axis, Y/L represents output Y) per worker L). 
-Refer to Figure 25-1. Choose a point anywhere on the curve and call it point A. If the economy is at point A in 2011, then it will definitely remain at point A in 2012 if, between 2011 and 2012,

Accepted Answer

The answer of Figure 25-1.
On the horizontal axis, K/L represents...

Question 10

All else equal, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year,

Accepted Answer

If there are diminishing returns, then the increase in output from an additional unit of capital will decrease as the amount of capital increases. Therefore, if a country raised its capital by 100 units last year and by another 100 units this year, the increase in output would be less this year than last year due to diminishing returns. Hence, option B is correct.

Question 11

If there are diminishing returns to capital, then

Accepted Answer

The answer of If there are diminishing returns to capital,...

Question 12

Figure 25-1.
On the horizontal axis, K/L represents capital K) per worker L). On the vertical axis, Y/L represents output Y) per worker L). 
-Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?

Accepted Answer

The answer of Figure 25-1.
On the horizontal axis, K/L represents...

Question 13

If a country's saving rate increases, then in the long run

Accepted Answer

An increase in saving rate leads to higher investment which in turn increases productivity due to improvements in technology and capital accumulation. This leads to a higher real GDP per person in the long run. Therefore, both productivity and real GDP per person are higher.

Question 14

Other things the same, a country that increases its savings rate will have

Accepted Answer

Increasing the savings rate leads to more capital accumulation over time, which in turn leads to higher future real GDP per person due to greater productivity and the ability to produce more goods and services.

Question 15

"When workers have a relatively small quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity by a relatively large amount." This statement

Accepted Answer

The statement is referring to the concept of diminishing marginal productivity of capital, which is the idea that as more capital is added to a fixed amount of labor, the additional output produced by each additional unit of capital will eventually decrease. Therefore, giving workers with a small quantity of capital an additional unit of capital will have a larger impact on their productivity than giving workers with a large quantity of capital an additional unit of capital. This is consistent with the view that capital is subject to diminishing returns. The statement does not necessarily imply constant returns to scale or address the issue of economic growth in developing countries, so choices A and C are incorrect.

Question 16

Country A and country B both increase their capital stock by one unit. Output in country A increases by 10 while output in country B increases by 8. Other things the same, diminishing returns implies that country A is

Accepted Answer

Diminishing returns implies that as more units of a variable input, such as capital, are added to a fixed amount of other inputs, the additional output from each additional unit of the variable input will eventually decrease. Therefore, if Country A adds another unit of capital, the increase in output will be less than the initial increase of 10 units. Country B, on the other hand, may not be subject to the same degree of diminishing returns, and adding another unit of capital may result in a greater increase in output than in Country A. Thus, Country A may be poorer than Country B even though it initially had a larger output increase from increasing its capital stock by one unit.

Question 17

Figure 25-1.
On the horizontal axis, K/L represents capital K) per worker L). On the vertical axis, Y/L represents output Y) per worker L). 
-Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?

Accepted Answer

The shape of the curve represents diminishing returns to capital, meaning that as the amount of capital per worker increases, the additional output per worker gained from adding more capital becomes smaller. This suggests that answer choice C is correct. Answer choices A and B may be true, but cannot be inferred from the information provided in the graph alone. Therefore, the best answer is C.

Question 18

According to the traditional view of the production function, which of the following values of the additions to output per worker would be consistent with moving from 5 to 6, and then from 6 to 7, and then from 7 to 8 units of capital per worker in that order?

Accepted Answer

According to the traditional view of the production function, as we increase capital per worker while holding other factors constant, the additions to output per worker will eventually decrease. Therefore, as we move from 5 to 6 units of capital per worker, we expect a larger addition to output per worker than when we move from 6 to 7 units, and even smaller when we move from 7 to 8 units. Option C is the only one that reflects this pattern, with additions to output per worker of 40, 34, and 32. The other options either show a constant addition to output per worker, which contradicts the traditional view of the production function, or an increasing addition to output per worker, which is not consistent with the decreasing marginal productivity of capital.

Question 19

All else equal, if there are diminishing returns and constant returns to scale, then what happens to productivity if capital and labor both increase but capital increases by more?

Accepted Answer

If there are diminishing returns and constant returns to scale, then increasing both capital and labor will eventually lead to lower productivity gains. However, if capital increases more than labor, this may shift the production function to a higher level of output, leading to an increase in productivity. Therefore, productivity will increase if capital increases by more than labor.

Question 20

The traditional view of the production process is that capital is subject to

Accepted Answer

The traditional view of the production process is that capital is subject to diminishing returns, meaning that as more capital is added to a fixed amount of labor, the marginal product of capital decreases. This is due to the fact that there is only a limited amount of complementary labor available to work with each unit of capital.

Quiz 17: Production and Growth