Suppose That There Are Diminishing Returns to Capital

question 154

Multiple Choice

Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital, and so less real GDP per person, than the other. Suppose that the saving rate in both countries increases from 5 percent to 6 percent. What would we expect over the next 10 years?

• A) The growth rate will not change in either country.
• B) The country with less capital will grow faster.
• C) The country with more capital will grow faster.
• D) Both countries will grow at the same rate.

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