Question

Question 26 (1 point)

In the model without uncertainty and with capital, a decrease in the productivity parameter

Question 26 options:

a	will unambiguously lower household welfare.
b	may increase or decrease household welfare because consumption falls but leisure rises.
c	may increase or decrease household welfare because consumption rises but leisure falls.
d	will unambiguously raise household welfare.

Answer 1

The correct option is--- (d)

will unambiguously raise household welfare

Explanation-------

In the model without uncertainty and with capital,a decrease in the productivity parameter will unambiguously raise household welfare.

Productivity is a measure of total efficiency of a production process.It is the efficiency with which firms,businesses or economy as a whole convert inputs into outputs.When productivity parameters are high, the household welfare is adversely affected but when these are low, it will raise household welfare.