Question

Richard purchases a stock issued by Google, Inc., which uses the funds to buy new machinery for one of its factories. In the language of macroeconomics,

A. Richard and Google are both investing.

B. Richard is investing, Google is saving.

C. Richard is saving, Google is investing.

D. Richard and Google are both saving.

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2. If a production function for a certain good is Y =A F (K, H, L, N) has decreasing returns to scale, and all factors of production are essential producing this good, then output can be doubled if (K, H, L, N stand for the quantities of physical capital, human capital, labor, and natural resource; A stands for technology)

A. all of the inputs double.

B. all inputs but labor double.

C. labor alone doubles.

D. None of the above is correct.

Answer 1

Ans.

1) C. Richard is saving and Google is investing.

When Richard purchase stock he is not investing in market but in equity shares of a Google company. That makes Richard a shareholder and thus owns part of the business. So by purchasing stocks issued by Google Richard is making money i.e he is saving money. Whereas Google is doing investment by using its funds to buy new machinery in order to increase productive capacity.

2) D. None of the above is correct

Given the production function of certain good Y = A F( K, H ,L ,N ) has decreasing return to scale, and all these factors of production are essential in producing the good, then output will be doubled if inputs are doubled but more than output doubles. If all input are doubled exactly equal to output doubles then it exhibits constant returns to scale. So in decreasing return to scale all inputs will double more than output doubles. So none of above is correct.