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Working with Numbers and Graphs 03 The following graph shows two production functions of the following general form: Real GDP=T(L,K)
Working with Numbers and Graphs 03 The following graph shows two production functions of the following general form: Real GDP=T(L,K). Refer to the following graph to answer the questions that follow. Q=TIL K=2) 6 Q-TIL, K-1) REAL GDP 1 0 0 2 3 LABOR Initially, the economy is at point A in the preceding graph. Suppose capital (K) increases, while labor (L) remains the same When more capital is utilized in the production process, the production function
Initially, the economy is at point A in the preceding graph. Suppose capital (K) increases, while labor (L) remains the same. When more capital is utilized in the production process, the production function Adjust the following graph to show the effect of a rise in physical capital on Real GDP. LRAS AD LRAS PRICE LEVEL AD Q. REAL GDP Grade It Now Save & Continue Continue without saving
Expert Solution
The increase in capital with labor remaining same would increase the capital per labor.
As capital per labor increases, productivity of the labor increases.
This increase in productivity shifts the production function upward.
So,
When more capital is utilized in the production process, the production function shifts upward.
This upward shift of the production function indicates an increase in the production potential of the economy.
When the production potential in the economy increases, the LRAS curve shifts rightward.
Following is the required figure -
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