Developed countries that direct their investment towards physical capital rather than research and development can expect to
A)have a higher level of output in the short run and a higher long-run growth rate
B)have a lower level of output in the short run and lower long-run growth rate
C)have a lower level of output in the short run but a higher long-run growth rate
D)have a higher level of output in the short run but a lower long-run growth rate
E)achieve A but only if the level of investment exceeds 1/3 of GDP

Question

Quizplus · Accepted Answer

Investing in physical capital can increase the short-run output due to increased productivity and efficiency, but in the long run, without innovation and technological advancements, the growth rate can slow down. Research and development, on the other hand, can lead to long-term economic growth as it leads to innovation and technological advancements. Therefore, countries that invest more in research and development can expect to have higher long-run growth rates.

Developed Countries That Direct Their Investment Towards Physical Capital Rather