Question

The dictator of a certain country requires that companies planning to open or expand must pay a large fee to file an application one year prior to building new factories or expanding existing ones. other things the same, in the long run this requirement would:
a. reduce real GDP per person but not productivity.
b. reduce real GDP per person and productivity.
c. reduce productivity but not real GDP per person.
d. none of the above is correct.

Answer 1

Answer:

b. reduce real GDP per person and productivity

Explanation:

To Compare GDP per person in  one year wit that of another year we have to correct for Inflation. We need to revise the following formula :

     Per capita real GDP = Real GDP / Population

The increasing population decreases the amount of capital per hour of labor, so eventually labor productivity and real GDP per person decreases.So, no matter how much technological change occurs, real income (Real GDP per person) is always pushed back toward subsutence level. The dismal implication led to economics beingcalled the dismal science.

The dictator of a certain country requires that companies planning to open or expand must pay a large fee to file an application one year prior to building new factories or expanding existing ones. other things the same, in the long run this requirement would reduce real GDP per person and productivity.