In the Cobb Douglas model the policy for long run growth is to.Select one:a.increase capital investment when the economy is both small and largeb.increase capital investment only when the economy is smallc.increase capital investment only when the economy is larged.increase the productivity of capital when the economy is small and large
Question
In the Cobb Douglas model the policy for long run growth is to.Select one:a.increase capital investment when the economy is both small and largeb.increase capital investment only when the economy is smallc.increase capital investment only when the economy is larged.increase the productivity of capital when the economy is small and large
Solution
To determine the policy for long-run growth in the Cobb Douglas model, we need to consider the relationship between capital investment and the size of the economy.
Step 1: Understand the Cobb Douglas model The Cobb Douglas model is an economic production function that relates the inputs of capital and labor to the output of goods and services. It assumes a constant returns to scale, meaning that increasing the inputs proportionally leads to a proportional increase in output.
Step 2: Analyze the options a) Increase capital investment when the economy is both small and large: This option suggests increasing capital investment regardless of the size of the economy. b) Increase capital investment only when the economy is small: This option suggests increasing capital investment only when the economy is relatively small. c) Increase capital investment only when the economy is large: This option suggests increasing capital investment only when the economy is relatively large. d) Increase the productivity of capital when the economy is small and large: This option suggests focusing on increasing the productivity of capital, regardless of the size of the economy.
Step 3: Determine the correct option In the Cobb Douglas model, the policy for long-run growth is to increase capital investment when the economy is both small and large. This means that increasing capital investment is beneficial regardless of the size of the economy. By increasing capital investment, the economy can experience sustained growth and higher levels of output.
Therefore, the correct answer is option a) increase capital investment when the economy is both small and large.
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