32. A key assumption of the Solow model is: a. increasing returns to labor and d

Question

32. A key assumption of the Solow model is: a. increasing returns to labor and diminishing returns to capital. b. diminishing returns to capital only. c. diminishing marginal product of capital and labor. d. diminishing marginal product of capital and increasing marginal product of e. constant marginal product of capital only labor. 3. The Great Depression lasted longer and was deeper than the average recession, in part, because: a. the government raised taxes and did not allow the money supply to increase. b. the government reduced barriers to trade c. the government reduced tax rates and increased spending d. consumer sentiment and spending both increased. e. the unemployment rate remained very low

Explanation / Answer

32. c

With neoclassical assumptions about the production function we assume them to have a diminishing marginal product of labour as well as capital. This is what gives the flat surface of production at higher levels of K.

33. Great depression followed right after the way. The govt increased the taxes but increased the ROI which could not lead to increase in money ss. This was mainly to curb the speculative action in the stock market. Due to which deflation got spread in the world.

Hence option A seems correct.

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