Question

To increase economic growth, governments should do the following

		encourage current consumption at the expense of savings.
		encourage current consumption and savings at the same time.
		encourage savings at the expense of current consumption.
		None of the statements above are correct.

B) Which statement best describes diminishing returns as it applies to economic growth?

		Increasing capital per labour increases output at an increasing rate.
		Increasing capital per labour increases output at a constant rate.
		Increasing capital per labour increases output at a decreasing rate.
		None of the statements above are correct.

Answer 1

1) Answer is C.

Government should encourage the savings at the expense of current consumption because these savings will be invested as capital. Increase in capital will increase the economic growth. Consumption does not create economic growth. Increase in capital increases the economic growth because more capital investment means more capacity to produce.

2) Answer is C.

Decreasing returns means when we increase the input output increase less than inrease in input.

Increasing returns means increase in inputs increases the output more than increase in inputs.

Constant returns means increase in inputs and output is same.

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