If a Larger Share of National Output Is Devoted to Investment

question 14

Multiple Choice

If a larger share of national output is devoted to investment, starting from an initial steady-state capital stock below the Golden Rule level, then productivity growth will:

• A) increase in the short run but not in the long run.
• B) increase in the long run but not in the short run.
• C) increase in both the short run and the long run.
• D) not increase in either the short run or the long run.

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Definitions:

Investment Funds

Pooled funds from investors that are managed by professionals and invested in a diversified portfolio of assets to earn returns.

Capital Investment

Expenditure on assets that are expected to produce benefits over a long period, such as buildings, machinery, and equipment.

Internal Rate

Often referred to in the context of Internal Rate of Return (IRR), it represents the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Capital Investment

Funds invested in a business or project with the expectation of generating income or profit, often involving the purchase of physical assets.