MID2SA

MID2SA - Elements of Economics 3, LE B Midterm 2, Solution...

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Elements of Economics 3, LE B Midterm 2, Solution MIDTERM 2 Suggested Solution Section II – Short Answer Questions Q1. a. No. The economy conforms to approximately one-half rule. In this economy, an x percent increase in the capital stock per hour of labor leads to approximately 0.5 x percent increase in real GDP per hour of labor. You can confirm this fact by calculating the percentage change in capital and real GDP at each of the levels provided in the table and then dividing the percentage change in real GDP by the percentage change in capital. For example, when capital per hour of labor increases by 100 percent from $20 to $40, real GDP per hour of labor increases approximately by 50 percent from $5.70 to $8.31. Or when capital per hour of labor increases 50 percent from $40 to $60, real GDP per hour of labor increases by approximately 25 percent from $8.31 to $10.29. b. Yes, Mongolia experiences diminishing returns. Diminishing returns are present if the marginal product of capital
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MID2SA - Elements of Economics 3, LE B Midterm 2, Solution...

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