1.4. You are hired as an economic consultant to the countries of Albernia and Brittania. Each country’s current relationship between physical capital per worker and output per worker is given by the curve labeled Productivity1 in the accompanying diagram.

Albernia is at point A and Brittania is at point B.

a. In the relationship depicted by the curve Productivity1, what factors are held fixed? Do these countries experience diminishing returns to physical capital per worker?

b. Assuming that the amount of human capital per worker and the technology are held fixed in each country, can you recommend a policy to generate a doubling of real GDP per capita in Albernia?

c. How would your policy recommendation change if the amount of human capital per worker and the technology were not fixed? Draw a curve on the diagram that represents this policy for Albernia.

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Real GDP per worker $40,000 A 20,000 Productivity B $10,000 30,000 Physical capital per worker