Assume That an Economy Is Described by a Cobb-Douglas Production

question 108

Multiple Choice

Assume that an economy is described by a Cobb-Douglas production function. If average labour productivity is growing rapidly:

• A)labour's share of total income will be increasing.
• B)labour's share of total income will be decreasing.
• C)workers will experience high rates of real wage growth.
• D)economic profits will be positive.

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Definitions:

Purchasing-Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach to assess the relative value of currencies.

Nominal Exchange Rate

How quickly one currency is swapped for another, without considering inflation adjustments.

Big Mac

A hamburger sold by McDonald's that is often used as an informal measure of purchasing power parity between currencies.

Depreciates

The decrease in value of an asset over time or in response to changes in market conditions.