Figure 7-1

question 75

Multiple Choice

Figure 7-1. On the horizontal axis, K/L represents capital (K) per worker (L) . On the vertical axis, Y/L represents output (Y) per worker (L) .

-Refer to Figure 7-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?

• A) In the long run, a higher saving rate leads to a higher growth rate of productivity.
• B) In the long run, a higher saving rate leads to a higher growth rate of income.
• C) Returns to capital become increasingly smaller as the amount of capital per worker increases.
• D) All of the above are correct.

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Definitions:

European Options

Financial derivatives that give the holder the right to buy or sell an underlying asset at a specified price, but only on the option's expiration date.

Payoff

The return received from an investment or the outcome of a decision or transaction.

Underlying Asset

The financial instrument (such as stocks, bonds, commodities) upon which derivatives or other financial instruments (e.g., options) are based.

Derivative Securities

Financial instruments whose value is derived from the value of one or more underlying assets or benchmarks.