Suppose That There Are Diminishing Returns to Capital

question 186

Multiple Choice

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

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

---

Definitions:

Corporate Profit

The financial surplus gained by a corporation after deducting all costs, taxes, and expenses from revenue.

Physical Capital

The stock of tangible goods like machinery, buildings, and infrastructure that are used in production.

Human Capital

Represents the skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country.

Financial Capital

The funds provided by lenders (and investors) to businesses to purchase real capital equipment for producing goods/services.