The cumulative power of productivity growth _____
A) emphasizes the importance of short-term growth.
B) emphasizes the importance of long-term growth.
C) emphasizes the importance of the capital-labor ratio.
D) increases poverty in an economy.
E) leads to capital deepening.

Question

Quizplus · Accepted Answer

Cumulative power of productivity growth emphasizes the importance of long-term growth as it has a compounding effect on the economy. As productivity increases, firms are able to produce more goods and services for a given level of input, which leads to higher profitability and wages. This, in turn, leads to an increase in consumption and investment, which spurs further growth. Capital deepening, or an increase in the capital-labor ratio, is a result of productivity growth rather than a cause. Increased poverty is a potential outcome if the benefits of productivity growth are not distributed evenly, but it is not a direct result of productivity growth itself.

The Cumulative Power of Productivity Growth _____