Question

Suppose Americans decide to save less of their incomes, reducing the ability of banks to lend to businesses. With less funds available to businesses, workers will have (more, less???) capital equipment with which to work. This leads to (slower, faster???)   growth in productivity.

Workers will (lose, benefit???) from the change in productivity growth because they will produce and earn (less, more???) .

True or False: Society can receive a “free lunch” when it builds new factories.

???

Answer 1

(1) With less funds available to business, workers will have less capital equipment. This leads to slower growth in productivity. Workers will lose from change in productivity growth because they will produce and earn less.

(2) False

Building of new factories helps create new jobs and higher income and output, but it causes pollution, which is a negative externality and lowers social efficiency. Therefore this is a trade-off between higher output and income, and lower efficiency.