For the law of diminishing returns to be present, we must have:
A. at least one factor of production to be fixed.
B. output decreasing as more laborers are hired.
C. the price of labor increasing as more workers are hired.
D. simultaneous changes in labor and capital.
Answer: A
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The self-correcting tendency of the economy means that falling inflation eventually eliminates:
A. exogenous spending. B. recessionary gaps. C. expansionary gaps. D. unemployment.
Refer to Figure 29-1. Europe experiences an economic boom. Assuming all else remains constant, this would be represented as a movement from
A) D to A. B) C to B. C) B to A. D) D to C.
If people have ________________, an announced monetary contraction by the Fed that is credible could reduce inflation with little or no increase in inflation.
A. rational expectations B. irrational expectations C. no expectations D. None of the above is correct.
If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is:
A. 4. B. 5. C. 3.33. D. 2.5.