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Macroeconomics

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Growth and Returns to Scale

MACRO-RYPJN4

Assume a country has the following production function: $Q = AL^a K^b $. If a + b = 1, how will a 20 percent increase in both labor and capital affect the potential output of this country?

Select ALL that apply.

A

Potential output will not change

B

Potential output will increase by 5%

C

Potential output will increase by 20%

D

Potential output will increase by 400%