Which of the following best explains the logic behind the catch-up effect?
A)Workers in countries with low incomes will work more hours than workers in countries with high incomes.
B)The capital stock in rich countries deteriorates at a higher rate because it already has a lot of capital.
C)New capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.
D)Poor countries tend to save a higher share of their income than rich countries.

Question

Quizplus · Accepted Answer

The catch-up effect suggests that new capital will have a greater impact on production in a country with low levels of existing capital than in a country that already has high levels of capital stock. This is because the marginal product of capital decreases as more capital is added to an economy, meaning that each additional unit of capital has a diminishing impact on output. In contrast, a country with little capital will experience a larger increase in output from each unit of additional capital that is invested.

Which of the Following Best Explains the Logic Behind the Catch-Up