Scenario: Two economies, A and B, have identical aggregate production functions with diminishing returns. In both economies, capital and labor are equally important for production. Economy A has twice as many efficiency units of labor as economy B. Economy B has twice as much physical capital stock as economy A.
-Refer to the scenario above.If population doubles and GDP remains unchanged,the economies' ________.
A) GDP per capita will increase
B) average standard of living will decrease
C) income per capita will remain unchanged
D) productivity will increase

Question

Quizplus · Accepted Answer

CIf the population doubles and GDP remains unchanged, GDP per capita, which is GDP divided by the population, will decrease, indicating a decrease in the average standard of living (B). However, income per capita, which is essentially another way to refer to GDP per capita in this context, will also decrease, contradicting choice C. The correct interpretation should note that both GDP per capita and the average standard of living will decrease, but due to the structure of the question and the choices provided, the most accurate answer reflecting the scenario's impact is that the average standard of living will decrease (B). The mention of productivity (D) is unrelated to the direct effects of a doubling population on GDP per capita. My initial explanation mistakenly included C as a correct choice due to an oversight in interpreting the effects on income per capita under the scenario described.

Scenario: Two Economies, a and B, Have Identical Aggregate Production