Scenario: Assume the Following Aggregate Production Functions for Two Countries

question 152

Multiple Choice

Scenario: Assume the following aggregate production functions for two countries, A and B, respectively.
YA=A KA¹/² ᴴA¹/²
ʸB=A KB²/³ ᴴB¹/³
-Refer to the scenario above.Which of the following is likely to happen if physical capital stock increases by 10 percent and efficiency units of labor increase by 10 percent over the next 10 years in Country A?

• A) Output will increase by 5 percent.
• B) Output will increase by 10 percent.
• C) Output will increase by 20 percent.
• D) Output will remain constant.

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Definitions:

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