1. Sketch a production function relating output to labour input. Now imagine that the amount of capital per person increases, thanks to the government borrowing to invest in more capital. Use dotted lines on the same diagram to show the impact on (i) total output and (ii) the average product of labour. Explain your answer. 2. Imagine that the demographic response to a higher standard of living is strongly positive. Using a different colour of line on the same diagram, show how this demographic response to higher incomes would go on to affect incomes in the future. 3. The population is aware that the government borrowing required to finance this capital investment will need to be paid back via tax rises, so they respond by reducing their spending. Using a "Keynesian cross" framework and sketch diagram, model this response as a fall in autonomous consumption, co. 4. Use your previous answers to comment on the effectiveness of using government borrowing as a tool to increase GDP. Consider whether the assumptions about the demographic response to higher living standards, and the population's response to government borrowing, have proved to be realistic.
1. Sketch a production function relating output to labour input. Now imagine that the amount of capital per person increases, thanks to the government borrowing to invest in more capital. Use dotted lines on the same diagram to show the impact on (i) total output and (ii) the average product of labour. Explain your answer. 2. Imagine that the demographic response to a higher standard of living is strongly positive. Using a different colour of line on the same diagram, show how this demographic response to higher incomes would go on to affect incomes in the future. 3. The population is aware that the government borrowing required to finance this capital investment will need to be paid back via tax rises, so they respond by reducing their spending. Using a "Keynesian cross" framework and sketch diagram, model this response as a fall in autonomous consumption, co. 4. Use your previous answers to comment on the effectiveness of using government borrowing as a tool to increase GDP. Consider whether the assumptions about the demographic response to higher living standards, and the population's response to government borrowing, have proved to be realistic.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. Sketch a production function relating output to labour input. Now imagine that the amount
of capital per person increases, thanks to the government borrowing to invest in more capital.
Use dotted lines on the same diagram to show the impact on (i) total output and (ii) the average
product of labour. Explain your answer.
2. Imagine that the demographic response to a higher standard of living is strongly positive.
Using a different colour of line on the same diagram, show how this demographic response to
higher incomes would go on to affect incomes in the future.
3. The population is aware that the government borrowing required to finance this capital
investment will need to be paid back via tax rises, so they respond by reducing their spending.
Using a "Keynesian cross" framework and sketch diagram, model this response as a fall in
autonomous consumption, co.
4. Use your previous answers to comment on the effectiveness of using government borrowing
as a tool to increase GDP. Consider whether the assumptions about the demographic response
to higher living standards, and the population's response to government borrowing, have
proved to be realistic.
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