Two Countries,Baltonia and Polonia,have Aggregate Production Functions in the Form

question 156

Multiple Choice

Two countries,Baltonia and Polonia,have aggregate production functions in the form Y = A × K¹/³ × H²/³,where Y denotes total output,A denotes the level of technology,K denotes the physical capital stock,and H denotes the number of efficiency units of production.Both countries have the same number of efficiency units of labor and use the same technology.However,Baltonia has a smaller physical capital stock than Polonia does.Which of the following is likely to be true in this case?

• A) The GDP of Baltonia is higher than that of Polonia.
• B) The GDP of Baltonia is lower than that of Polonia.
• C) The Human Development Index of Baltonia is higher than that of Polonia.
• D) The poverty rate in Baltonia is lower than that in Polonia.

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Definitions:

WACC

Weighted Average Cost of Capital, a calculation that reflects the average rate that a company is expected to pay on its securities, taking into account debt and equity.

Target Capital Structure

The mix of debt, equity, and other securities that a company aims to hold in order to finance its assets and operations ideally.

Flotation Costs

Expenses associated with issuing new securities, including legal, underwriting, and registration fees.

Effective Tax Rate

The average percentage of one's total income paid in taxes, factoring in all deductions and credits.