In the Solow model,the faster growth of output that results from an increase in the saving rate is temporary,because ________.
A)of diminishing marginal product of capital
B)with a larger stock of capital,consumption is encouraged more than investment
C)the rising capital stock depreciates at a faster rate
D)the economy settles into a steady state in which saving no longer rises

Question

Quizplus · Accepted Answer

In the Solow model, the faster growth of output that results from an increase in the saving rate is temporary because of diminishing marginal product of capital. As more and more capital is accumulated, the additional output resulting from each additional unit of capital becomes smaller and smaller, ultimately leading to a steady state where the growth rate of output will depend only on exogenous technological progress.

In the Solow Model,the Faster Growth of Output That Results