Under the conditions of endogenous growth,
A) there is no role for government intervention in taxing or subsidizing investment
B) constant MPK prevents spillover effects between physical and human capital
C) subsidies for capital investment can boost long run growth
D) firms are likely to over-invest in physical capital
E) investment continues only until a steady state is reached

Question

Quizplus · Accepted Answer

Under the conditions of endogenous growth, subsidies for capital investment can boost long run growth. This is because in endogenous growth models, growth is primarily driven by investments in knowledge and human capital rather than just physical capital. Subsidies can encourage investment in these areas and therefore lead to sustained economic growth. The other choices are incorrect. A) Government intervention in taxing or subsidizing investment can play a role in promoting economic growth in endogenous growth models. B) Spillover effects between physical and human capital are possible in endogenous growth models even with constant MPK. D) Firms are not likely to over-invest in physical capital as growth is driven by knowledge and human capital investments. E) Investment can continue beyond achieving a steady state in endogenous growth models.

Under the Conditions of Endogenous Growth