Suppose That There Are Diminishing Returns to Capital

question 25

Multiple Choice

Suppose that there are diminishing returns to capital.Suppose also that two countries are the same except one has more capital per worker and so it has more real GDP per worker than the other.Finally,suppose that the saving rate in both countries increases from 4 percent to 7 percent.Over the next ten years we would expect that

• A)the growth rate will not change in either country.
• B)the country that started with less capital per worker will grow faster.
• C)the country that started with more capital per worker will grow faster.
• D)both countries will grow and at the same higher rate.

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Definitions:

Capacity

The highest amount of production a business can maintain over a specific time frame under standard conditions.

Machine-Hours

A measure of production volume or activity based on the number of hours that machines are operated.

Unused Capacity

The available production or service facility that is not currently being used to its full potential.

Estimated Activity

A forecast of the level of operations or engagement in a particular task or project.