What is the key idea of classical growth theory that leads to the dismal outcome?
What will be an ideal response?
The "dismal outcome" in classical theory is the conclusion that in the long run real GDP per person equals the subsistence level. In classical growth theory, an increase in real GDP per person causes population increases that return real GDP per person to the subsistence level. In the classical growth theory, an increase in income creates a population boom. The increase in population increases the supply of labor. Because of diminishing returns to labor, the increase in the supply of labor lowers the real wage rate and people's incomes. Eventually the real wage rate falls to equal the subsistence level, at which time the population stops growing.
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The budget line shows:
A. the amount of product A that a consumer is willing to give up to obtain one more unit of product B. B. all possible combinations of two goods that can be purchased, given money income and the prices of the goods. C. all equilibrium points on an indifference map. D. all possible combinations of two goods that yield the same level of utility to the consumer.
On this production possibilities curve, what product is being produced?
a. hours of study time
b. grades for two classes
c. labor for the professor
d. methods of studying