Suppose That There Are Diminishing Returns to Capital

question 168

Multiple Choice

Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital, and so less real GDP per person. Suppose that both increase their saving rate from 3 percent to 4 percent. What will happen in the long run?

• A) Both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with more capital.
• B) Both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with less capital.
• C) Both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with more capital.
• D) Both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

Understand the concept of base-rate information and its significance in decision-making.

Recognize the impact of heuristics, such as the availability heuristic, on judgment and decision-making processes.

Identify errors in reasoning and judgment, such as overlooking base-rate information or the influence of representativeness heuristic.

Define critical thinking and its importance in evaluating evidence and making conclusions.

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Definitions:

Social Cues

Nonverbal signals and behaviors that guide social interactions and communicate information about a person's feelings, intentions, and social status.

Unfamiliar Situations

Circumstances or environments that are not known or experienced previously by an individual.

Social-cognitive Perspective

A psychological framework emphasizing the role of cognitive processes in understanding social behavior.

Personality Theorist

An individual specializing in the study of personality development, structures, and theories.