Suppose That There Are Diminishing Returns to Capital

question 25

Multiple Choice

Suppose that there are diminishing returns to capital.Suppose also that two countries are the same except one has more capital per worker and so it has more real GDP per worker than the other.Finally,suppose that the saving rate in both countries increases from 4 percent to 7 percent.Over the next ten years we would expect that

• A)the growth rate will not change in either country.
• B)the country that started with less capital per worker will grow faster.
• C)the country that started with more capital per worker will grow faster.
• D)both countries will grow and at the same higher rate.

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Definitions:

Trade-Offs

Situations requiring a choice between options that have different advantages and disadvantages, involving compromises.

Optimal Order

The most efficient or cost-effective quantity of goods to order, taking into account factors such as demand, holding costs, and ordering costs.

Available Capacity

The amount of production capability or service availability that can be provided over a certain period of time.

Multiple Products

The strategy or situation of offering or managing a variety of different products instead of focusing on a single offering.