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An article in the Gotham Times states that the stock of capital and the workforce in...

An article in the Gotham Times states that the stock of capital and the workforce in Gotham are both increasing at an annual rate of 5 percent. The same article states that real output is growing by 10 percent. This is possible in the long run because the economy is experiencing an increase in​ ____________.

A.

productivity growth.

B.

government spending.

C.

demand for goods and services.

D.

all of the above.

This is possible in the short run because​ ____________.

A.

more of the capacity is utilized.

B.

more of the existing capital stock is used.

C.

more of the labor force becomes employed.

D.

all of the above.

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Answer #1

If the stock of capital and the workforce in Gotham are both increasing at an annual rate of 5 percent but real output is growing by 10 percent, the reason for this could be -

1) In Long run, perhaps there is a growth in productivity function (most likely cause for output growth in long run)

Correct Ans - A

2) In the short run, real output growth can be explained by various factors like -

  • More utilization of capacity
  • More usage of existing capital stock
  • Increased employment of labor force

Correct Ans - D

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