Exhibit 17-1 Production Function

question 30

Multiple Choice

Exhibit 17-1
Production Function
Real GDP = T (L, K) , such that Real GDP = T(L + K)
Assume that the technology coefficient is equal to 0.50.
-Refer to Exhibit 17-1. If this production function is graphed with Real GDP on the vertical axis and labor on the horizontal axis,and the technology coefficient rises from 0.50 to 0.60,it would cause a

• A) shift upward in the production function to a higher level of Real GDP.
• B) shift downward in the production function to a lower level of Real GDP.
• C) movement down along the same production function to a lower level of Real GDP.
• D) movement up along the same production function to a higher level of Real GDP.

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Definitions:

Real GDP

Gross Domestic Product adjusted for inflation, measuring the value of goods and services produced within a country in a given period, reflecting the actual productivity.

Price Level

A comprehensive average of prices for all goods and services within the economic output.

Inflation

The surge in the overall pricing structure for goods and services, undermining the efficiency of spending.

Goods and Services

The outputs produced by the economy, where goods are tangible objects and services are intangible offerings that satisfy consumer needs or wants.