According to the Solow model,an economy should build
A) as much capital as possible.
B) more capital as long as the marginal product is positive.
C) more capital as long as doing so will increase output.
D) more capital as long as the extra benefit is at least as great as the extra cost.
E) more capital as long as there are no diminishing returns.

Question

Quizplus · Accepted Answer

According to the Solow model, an economy should build more capital as long as the extra benefit is at least as great as the extra cost. This is because the model assumes the law of diminishing returns, which means that adding more capital beyond a certain point will result in decreasing marginal product. Therefore, it is only efficient to build more capital if the extra benefit (measured by the increase in output) is at least equal to the extra cost.

According to the Solow Model,an Economy Should Build