According to the Solow-Swan model of economic growth, greater investment in physical capital raises the standards of living temporarily because of:
A)crowding out effects
B)demand pull inflation
C)diminishing returns
D)loanable funds

Question

Quizplus · Accepted Answer

Greater investment in physical capital raises the standards of living temporarily because of diminishing returns.
Key Takeaway: The Solow-Swan model of economic growth assumes that there are diminishing returns to physical investments. Diminishing returns refer to the ever decreasing output that accompanies increasing investment. For example, if a company increases the number of machines per production shift, the output may not correspond to the number of machines added.

According to the Solow-Swan Model of Economic Growth, Greater Investment