Question 1

Country A has a smaller stock of capital than Country B,but the supply of labor in both countries is equal.What does this imply?
A) The increase in output due to the use of an additional unit of capital will be smaller in Country A than in Country B.
B) The increase in output due to the use of an additional unit of capital will be larger in Country A than in Country B.
C) The use of an additional unit of capital will increase output in Country A only if there is an increase in the total efficiency units of labor.
D) The use of an additional unit of capital will increase output in Country B only if there is an increase in the total efficiency units of labor.

Accepted Answer

The law of diminishing returns implies that when a factor of production (capital, in this case) is increased while other factors (like labor) are held constant, the additional output (marginal product) generated from the extra unit of the factor decreases as more of that factor is added. Since Country A has a smaller stock of capital, the marginal product of an additional unit of capital is likely to be higher in Country A than in Country B, where capital is more abundant.

Question 2

The short-run aggregate production function is subject to ________ if capital stock is increased,holding the total efficiency units of labor constant.
A) the Law of Diminishing Marginal Product
B) decreasing opportunity cost of production
C) increasing opportunity cost of production
D) increasing returns to scale

Accepted Answer

The Law of Diminishing Marginal Product states that as we increase one factor of production (capital stock) and holding other factors of production constant (total efficiency units of labor), the marginal product of the variable input (capital stock) will eventually decrease, leading to diminishing marginal returns. Therefore, the short-run aggregate production function is subject to the Law of Diminishing Marginal Product if capital stock is increased, holding the total efficiency units of labor constant. The other choices are not applicable in this scenario.

Question 3

Scenario: Country X and Country Y have identical aggregate production functions as shown in the figure below. The amount of physical capital stock available to each country is also equal. However, the labor supply for Country X is HX, while the labor supply for Country Y is HY.
 
-Refer to the scenario above.A one-unit increase in the efficiency units of labor will lead to ________ in output in Country X than in Country Y.
A) a larger increase
B) a smaller increase
C) a larger decrease
D) a smaller decrease

Accepted Answer

Since Country X has a steeper slope for its production function, a one-unit increase in efficiency units of labor will lead to a larger increase in output in Country X than in Country Y. This indicates that Country X is more productive and efficient than Country Y.

Question 4

Which of the following causes an economy to move upward along the aggregate production function?
A) A decrease in the physical capital stock
B) An increase in the price level
C) An increase in the productivity of workers
D) An improvement in technology

Accepted Answer

An increase in productivity of workers shifts the aggregate production function upward since output per unit of input (labor) increases.

Question 5

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 you were to draw the aggregate production functions for economies A and B,holding physical capital stock constant at each county's given level,you would draw ________.
A) one aggregate production function, where economy B's level of production is greater than economy A's level of production
B) two separate aggregate production functions, where the one for economy B lies above the one for economy A
C) one aggregate production function, where both economies' output are at the same level
D) two separate aggregate production functions where the one for economy A lies above the one for economy B

Accepted Answer

Given that both economies have identical aggregate production functions with diminishing returns and that capital and labor are equally important, the fact that Economy A has twice as many efficiency units of labor as Economy B, and Economy B has twice as much physical capital stock as Economy A, would balance out. Thus, when drawing their aggregate production functions with each country's given level of capital stock, both economies would have the same level of output, leading to one aggregate production function where both economies' outputs are at the same level.

Question 6

Argonia is currently producing Q amount of output using H efficiency units of labor,as shown in the following figure.
  
Several workers in Argonia died during a year due to an epidemic.How will this affect output in the next year if all the other variables remained constant over the year? Explain with a suitable diagram.

Accepted Answer

The answer of Argonia is currently producing Q amount of...

Question 7

In a graph that measures output in the y-axis and the efficiency units of labor in the x-axis,which of the following causes an upward movement along the aggregate production function?
A) An increase in the total efficiency units of labor
B) A decrease in the physical capital stock
C) An improvement in technology
D) A decrease in the productivity of workers

Accepted Answer

An increase in the total efficiency units of labor would cause an upward movement along the aggregate production function because it represents an increase in the productivity of labor, which leads to an increase in output. The other options would either shift the production function downward (B and D) or shift it upward (C).

Question 8

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.Which of the following statements is true?
A) Productivity must be greater in economy A.
B) The relationship between GDP and total efficiency units of labor must be the same in economies A and B.
C) The relationship between GDP and physical capital stock cannot be the same in economies A and B.
D) All of the above.

Accepted Answer

Given that both economies have identical aggregate production functions with diminishing returns and that capital and labor are equally important for production, the total efficiency units of labor and the physical capital stock, despite being different in quantity between the two economies, contribute to the production in a balanced way. This implies that the relationship between GDP and total efficiency units of labor, as well as the relationship between GDP and physical capital stock, should follow the same pattern in both economies, assuming all other factors are constant. However, the question only states that the relationship between GDP and total efficiency units of labor must be the same, which is true given the information provided.

Question 9

Two countries-X and Y-have identical production functions.The efficiency units of labor in both countries are also equal.However,Country X has KX units of physical capital stock,while Country Y has KY units of physical capital stock,as shown in the figure below.
  
How will increases in the physical capital stock affect the output growth in these countries?

Accepted Answer

The answer of Two countries-X and Y-have identical production functions.The...

Question 10

A country's physical capital stock decreases after a war while its labor supply remains constant.Which of the following will happen in this case if output is a function of physical capital stock and the efficiency units of labor?
A) Its total output will remain constant.
B) Its total output will decrease.
C) Its per capita output will increase.
D) Its per capita output will remain constant.

Accepted Answer

Output is a function of physical capital stock and efficiency units of labor. If the physical capital stock decreases, then the total output will decrease. The labor supply remains constant, so there is no increase in efficiency. Therefore, per capita output will also decrease.

Question 11

The aggregate production function shows a(n)________ relationship between ________ and output.
A) decreasing; physical capital stock
B) increasing; physical capital stock
C) constant; labor
D) decreasing; labor

Accepted Answer

The aggregate production function shows an increasing relationship between physical capital stock and output. As the level of physical capital stock increases, it leads to higher productivity and output. This is a key insight into why investment in physical capital is important for long-term economic growth.

Question 12

Scenario: Country X and Country Y have identical aggregate production functions as shown in the figure below. The amount of physical capital stock available to each country is also equal. However, the labor supply for Country X is HX, while the labor supply for Country Y is HY.
 
-Refer to the scenario above.What does the slope of the aggregate production function imply?
A) The diminishing marginal product of labor
B) The diminishing marginal product of capital
C) The quantity of labor supplied
D) The quantity of capital supplied

Accepted Answer

The slope of the aggregate production function represents the marginal product of labor, which typically diminishes as more labor is added, holding other inputs constant.

Question 13

The ________ in output due to each additional unit of a factor of production is ________ when other factors are held constant.
A) increase; smaller
B) increase; larger
C) decrease; smaller
D) decrease; larger

Accepted Answer

The concept described is the law of diminishing marginal returns, which states that as more units of a factor of production are added (while other factors are held constant), the additional output produced by each new unit will eventually decrease.

Question 14

Xenonia has a larger supply of labor than does Inventia.If the labor supply in both countries increases by the same amount while their physical capital stocks remain unchanged,________.
A) the increase in Xenonia's output will be more than the increase in Inventia's output
B) the increase in Inventia's output will be more than the increase in Xenonia's output
C) Xenonia's income per capita will increase, while Inventia's income per capita will decrease
D) Xenonia's income per capita will decrease, while Inventia's income per capita will increase

Accepted Answer

DThe law of diminishing returns suggests that as more labor is added without an increase in capital, the additional output generated by the new labor decreases. Since Xenonia already has a larger supply of labor, the additional labor will produce less additional output compared to Inventia, where the labor force was initially smaller, making B correct. For D, as both countries' labor forces increase without an increase in capital, the output per capita is likely to decrease in both countries due to the diminishing returns. However, the question's phrasing implies a comparison rather than an absolute change in income per capita, making the explanation for D less directly supported by the given information. The correct interpretation hinges on understanding the law of diminishing returns and its impact on output and income per capita when labor increases without a corresponding increase in capital.

Question 15

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.Over time,economy A develops sophisticated technology,and human capital becomes less and less valuable in the production of goods and services that require more and more physical capital.How will this affect economy A's aggregate production function?
A) It will shift up and become less steep if physical capital stock is held constant.
B) It will shift up and become less steep if total efficiency units of labor are held constant.
C) It will shift to the left if physical capital stock is held constant.
D) It will shift to the left and become steeper if total efficiency units of labor are held constant.

Accepted Answer

As human capital becomes less important in the production process, the marginal product of labor decreases, leading to a flatter aggregate production function. However, as technology becomes more sophisticated, the marginal product of physical capital increases, leading to a higher level of output for any given level of physical capital. Thus, the aggregate production function will shift up and become less steep if physical capital stock is held constant.

Question 16

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.From the description,it can be inferred that ________.
A) economy B employs more sophisticated technology in production
B) economy A better educates its citizens
C) economy B has more valuable natural resources
D) both statements B and C are true

Accepted Answer

Both statements B and C are true. Economy A has twice as many efficiency units of labor as economy B, which suggests that economy A better educates its citizens. Economy B has twice as much physical capital stock as economy A, which suggests that economy B has more valuable natural resources.

Question 17

Inventia has 1 million workers.Suppose 50,000 workers migrate from a neighboring country to join Inventia's workforce.Which of the following will happen in this case if Inventia's physical capital stock remains unchanged?
A) The marginal contribution of labor to Inventia's output will fall.
B) The relationship between output and physical capital stock becomes negative.
C) The total efficiency units of labor in the economy will decrease.
D) The country's income per worker will increase.

Accepted Answer

With the addition of 50,000 workers, the total labor force in Inventia increases, but the physical capital stock remains the same. This means that each worker will have access to the same amount of physical capital, leading to diminishing marginal returns to labor. As a result, the marginal contribution of labor to Inventia's output will fall.

Question 18

What does the Law of Diminishing Marginal Product state?

Accepted Answer

The answer of What does the Law of Diminishing Marginal...

Question 19

Suppose a country's labor supply increases in a year while its physical capital stock remains constant.Which of the following is likely to happen in this case if output is a function of capital and the total efficiency units of labor?
A) Its output per capita will decrease.
B) Its total output will decrease.
C) Its total output will increase.
D) Its total output will remain constant.

Accepted Answer

An increase in labor supply will lead to an increase in the total efficiency units of labor, which will increase the country's total output. This assumes that the production function exhibits constant returns to scale, meaning that a proportional increase in inputs leads to an equal increase in output. Since the physical capital stock remains constant, the output per capita may or may not change depending on the magnitude of the increase in labor supply relative to the population growth. However, we know that total output will increase.

Question 20

Industria and Agraria are two neighboring countries.Suppose Good X is the only good produced in both countries and its production is a function of physical capital and the efficiency units of labor.It is found that a one-unit increase in capital leads to a higher increase in the production of Good X in Agraria than in Industria.Explain this outcome if both countries have the same number of efficiency units of labor.

Accepted Answer

The answer of Industria and Agraria are two neighboring countries.Suppose...

Quiz 6: Aggregate Incomes

Country A has a smaller stock of capital than Country B,but the supply of labor in both countries is equal.What does this imply?

The short-run aggregate production function is subject to ________ if capital stock is increased,holding the total efficiency units of labor constant.

Which of the following causes an economy to move upward along the aggregate production function?

In a graph that measures output in the y-axis and the efficiency units of labor in the x-axis,which of the following causes an upward movement along the aggregate production function?

A country's physical capital stock decreases after a war while its labor supply remains constant.Which of the following will happen in this case if output is a function of physical capital stock and the efficiency units of labor?

The aggregate production function shows a(n) relationship between and output.

The in output due to each additional unit of a factor of production is when other factors are held constant.

Xenonia has a larger supply of labor than does Inventia.If the labor supply in both countries increases by the same amount while their physical capital stocks remain unchanged,________.

Inventia has 1 million workers.Suppose 50,000 workers migrate from a neighboring country to join Inventia's workforce.Which of the following will happen in this case if Inventia's physical capital stock remains unchanged?

What does the Law of Diminishing Marginal Product state?

Suppose a country's labor supply increases in a year while its physical capital stock remains constant.Which of the following is likely to happen in this case if output is a function of capital and the total efficiency units of labor?

Quiz 6: Aggregate Incomes

Country A has a smaller stock of capital than Country B,but the supply of labor in both countries is equal.What does this imply?

The short-run aggregate production function is subject to ________ if capital stock is increased,holding the total efficiency units of labor constant.

Which of the following causes an economy to move upward along the aggregate production function?

In a graph that measures output in the y-axis and the efficiency units of labor in the x-axis,which of the following causes an upward movement along the aggregate production function?

A country's physical capital stock decreases after a war while its labor supply remains constant.Which of the following will happen in this case if output is a function of physical capital stock and the efficiency units of labor?

The aggregate production function shows a(n) ________ relationship between ________ and output.

The ________ in output due to each additional unit of a factor of production is ________ when other factors are held constant.

Xenonia has a larger supply of labor than does Inventia.If the labor supply in both countries increases by the same amount while their physical capital stocks remain unchanged,________.

Inventia has 1 million workers.Suppose 50,000 workers migrate from a neighboring country to join Inventia's workforce.Which of the following will happen in this case if Inventia's physical capital stock remains unchanged?

What does the Law of Diminishing Marginal Product state?

Suppose a country's labor supply increases in a year while its physical capital stock remains constant.Which of the following is likely to happen in this case if output is a function of capital and the total efficiency units of labor?

The aggregate production function shows a(n) relationship between and output.

The in output due to each additional unit of a factor of production is when other factors are held constant.