Suppose That There Are Diminishing Returns to Capital

question 154

Multiple Choice

Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital, and so less real GDP per person, than the other. Suppose that the saving rate in both countries increases from 5 percent to 6 percent. What would we expect over the next 10 years?

• A) The growth rate will not change in either country.
• B) The country with less capital will grow faster.
• C) The country with more capital will grow faster.
• D) Both countries will grow at the same rate.

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Definitions:

Perfectly Elastic

This term refers to a situation in demand or supply where the quantity demanded or supplied responds infinitely at a particular price level.

Excise Tax

A type of tax imposed on specific goods, services, or transactions, often with the intent of discouraging their use or consumption, or to raise revenue.

Downward-Sloping

A term typically used in economics to describe a curve or line on a graph that represents a decrease in one variable as another variable increases, often used to describe demand curves.

Excise Tax

A specific tax levied on the sale of a particular good or service, typically to discourage its consumption or to raise revenue.