The key to escaping the "iron logic" of diminishing returns in the Solow model is:
A) investment in physical capital.
B) education and training to build human capital.
C) new ideas.
D) foreign investment.

Question

Quizplus · Accepted Answer

The Solow model suggests that increasing physical capital and labor inputs eventually result in diminishing returns to output. However, new ideas and technological advancements can lead to increasing returns to scale, allowing for sustained economic growth beyond the point of diminishing returns. Therefore, the key to escaping the "iron logic" of diminishing returns in the Solow model is the development and adoption of new ideas. Choices A, B, and D can contribute to economic growth, but they are not sufficient on their own to overcome the constraint of diminishing returns.

The Key to Escaping the "Iron Logic" of Diminishing Returns