Suppose That There Are Diminishing Returns to Capital

question 16

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.Suppose that both increase their saving rate from 3 percent to 4 percent.In the long run

• A)both countries will have permanently higher growth rates of real GDP per person,and the growth rate will be higher in the country with more capital.
• B)both countries will have permanently higher growth rates of real GDP per person,and the growth rate will be higher in the country with less capital.
• C)both countries will have higher levels of real GDP per person,and the temporary increase in growth in the level of real GDP per person will have been greater in the country with more capital.
• D)both countries will have higher levels of real GDP per person,and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

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Definitions:

Par Value

The face value of a bond or stock as stated by the issuing company.

Dividend Per Share

The amount of dividend that a company pays out for each share of its stock over a designated period.

Commission Charges

Fees paid to an agent or company for facilitating or completing a sale, often a percentage of the sale price.

Proceeds

The total amount of money received from a transaction or event, often after costs or other deductions are accounted for.