Suppose that a country increased its saving rate. In the long run it would have

a. higher productivity, and another unit of capital would increase output by more than before.

b. higher productivity, but another unit of capital would increase output by less than before.

c. lower productivity, and another unit of capital would increase output by more than before.

d. lower productivity, but another unit of capital would increase output by less than before.

Question

Business

Washington

10 March, 13:08

Suppose that a country increased its saving rate. In the long run it would have

a. higher productivity, and another unit of capital would increase output by more than before.

b. higher productivity, but another unit of capital would increase output by less than before.

c. lower productivity, and another unit of capital would increase output by more than before.

d. lower productivity, but another unit of capital would increase output by less than before.

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Answers (1)

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Bumblebee · Answer 1

a. higher productivity, and another unit of capital would increase output by more than before.

Explanation:

The productivity will be higher as more saving will increase investment.

Therefore, the economy will be more productive as there is more capital per worker.

Is important to comment that due to diminished return theory each additional unit of capital would increase this productivity by a fewer amount. But, this applies on the short run, when the other factors don't change.

Therefore, option a is the correct as the capital increase is not faced agains a bottleneck of the other factor (labor, business and land)