Suppose that an economy grows by 4 percent, total factor productivity grows by 3 percent, and the labor force increases by 6 percent. If labor and capital are the only inputs and labor contributes 40 percent to GDP, then the stock of capital must have _____.
a. fallen by 5
b. fallen by 3.33
c. fallen by 2.33
d. risen by 3
e. risen by 1.8
Question 2
If the income elasticity of demand for good A was 3.9 and the income elasticity of demand for B was 0.2:
a. Both good A and good B are normal.
b. Both good A and good B are inferior.
c. Good A is normal and good B is inferior.
d. Good A is inferior and good B is normal.
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