In Neoclassical Growth Theory, If the Rate of Return on Capital

question 75

Multiple Choice

In neoclassical growth theory, if the rate of return on capital increases due to a technological advance, then

• A)the rate of return on capital will eventually decline.
• B)capital per hour of labour will decrease.
• C)real GDP per hour of labour will decrease.
• D)the rate of return on capital will never decline.
• E)population growth will explode.

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Definitions:

Capital Budgeting

The process of evaluating and selecting long-term investments that are consistent with the firm's goal of maximizing owner wealth.

Foreign Currency

Currency used in a country other than one's own, involved in international transactions or investment opportunities.

Home Currency

The currency in which a country conducts its principal economic activities and in which domestic financial statements are reported.

Exchange Rate Risk

The possibility of losing value in international financial transactions due to fluctuations in the currency exchange rates.