Macroeconomics: Principles and Policy (MindTap Course List)
13th Edition
ISBN: 9781305280601
Author: William J. Baumol, Alan S. Blinder
Publisher: Cengage Learning
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Chapter 7, Problem 5TY
To determine
To describe: The way in which the capital formation shifts the production function as a graph, increase in labor productivity and the reason for labor is more productive when the capital stock is larger.
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Why does an increase in the labor force cause the Market Productivity of Capital to increase?
Assume that you know that there are only two factors, capital and labour, and that aggregate capital income = $1.25 billion aggregate labour income = $4 billion capital stock growth rate = 1.2 percent employment growth rate = 2.8 percent output growth rate = 3.7 percent. then the average annual rate of aggregate technological progress is (1) 9.00 percent. (2) -0.30 percent. (3) 7.70 percent. (4) 1.28 percent
The capital accumulation theory of economic growth that economies attain growth through saving invested in increasing the capital resources in the economy fails to take account of which of the following factors?
a) For capital accumulation to produce economic growth it has to be the right type of capital that can be applied to the production of goods desired by society.
b) The capital created has to be efficient. Savings may be squandered by producing capital goods that consume a lot of resources to produce, produce poor quality goods, or are wasteful of other resources.
c) For capital to be productive there must be appropriate infrastructure including transportation and communication systems, banking and legal systems, as well as requisite natural resources and often appropriately skilled labor.
d) Societies may still squander the wealth created by capital accumulation and in the long-run limit the growth of the economy.
e) All of the above
Chapter 7 Solutions
Macroeconomics: Principles and Policy (MindTap Course List)
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Similar questions
- Would the following events usually lead to capital deepening? Why or why not? A weak economy in which businesses become reluctant to make long-term investments in physical capital. A rise in international trade. A trend in which many more adults participate in continuing education courses through their employers and at colleges and universities.arrow_forwardBased in info and your answer in question 1 what is capital productivityarrow_forwardIn the long run, capital deepening, a. doesn't change the level of productivity or income. b. raises the levels of both productivity and income. c. Raises the level of productivity but not the level of income. d. raises the level of Income but not the level of productivityarrow_forward
- Why does adding capital to a production function make the economy more productive? What are diminishing returns to capital? How does technology affect productivity and growth?arrow_forwardIn Wonderland production per worker (y) depends on capital per worker (3) such the y=10√k. Every year 15% of the capital stock depreciates, while workers in Wonderland save 10% of their income. Every year the population grows at as e of 3% a) How might Wonderland and Neverland achieve economic growth in the long run?arrow_forwardThe aggregate production function is y=3KL. If they are 30 units of capital and 40 units of labor, what is aggregate output? What is labor productivity? What is capital productivity?arrow_forward
- Refer to Figure 1. A movement from Point C to Point D represents: an increase in capital stock. economic growth. economic decline. an increase in the labor force.arrow_forwardAssume that the growth rate of the capital stock in each period is determined by the level of output in the previous period. 1) An economy of 80 million people has ten percent of them engaged in research and development, where their productivity is 0.0035. The economy is on a balanced growth path, when suddenly 2.88 million people move from goods production into R&D, raising the fraction there to 13.6 percent. In the one period that begins with this labor reallocation, the growth rate of output is ________. [Refer to the instruction above.] A) 2.8% B) 0.0% C) 3.8% D) 2.2%arrow_forwardAssume a Cobb-Douglas production with capital share 1/3; total factor productivity equal to 2, total population in an economy is equal to 1, the steady-state level of capital stock is 8.0. Then the steady-state level of output is about: a. 4.0 b. 2.0 c. 22.6 d. 8.0 e. 45.4arrow_forward
- How does the price of capital tend to change during an economic boom? During a recession?arrow_forwardHow does the price of capital tend to change during a boom? During a recession?arrow_forwardProductivity is one of the most important factor in any economy. This can be as part of labor or other factors of production. Explain that how capital can enhance productivity in an economyarrow_forward
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