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:

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Psychoanalyst

A therapist who uses psychoanalysis, a therapeutic technique founded by Freud, to explore unconscious motives and conflicts in patients.

Placebo Effect

Experimental results caused by expectations alone; any effect on behavior caused by the administration of an inert substance or condition, which the recipient assumes is an active agent.

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