Consider Two Countries, Estonia and Ukraine

question 133

Multiple Choice

Consider two countries, Estonia and Ukraine. Estonia devotes a larger portion of its production to capital. All other things equal, which of the following statements is most likely true?

• A) Estonia is a poorer country than Ukraine.
• B) Estonia will move up its production possibility curve faster than Ukraine.
• C) Estonia's production possibility frontier will shift up and out farther and faster than Ukraine's.
• D) Ukraine is producing inside its production possibility frontier, whereas Estonia is producing at a point on its production possibility frontier.

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Definitions:

Capital Stock

The total amount of physical, human, and intellectual capital that a country possesses at any given time.

Beneficial Supply Shock

An unexpected event that increases the production capacity and decreases the prices of goods and services.

Potential Output

The maximum sustainable level of real GDP over the long term that does not lead to an increase in inflation.

Price Level

This term refers to the average of current prices across the entire spectrum of goods and services produced in the economy.