Immediately following the increase in the investment rate, output grows rapidly. As the economy approaches its new steady state, the growth rate gradually declines.

Question

Quizplus · Accepted Answer

This is a concept in the Solow growth model, where the temporary increase in investment leads to a temporary increase in output growth, but eventually, the economy reaches a new steady state with a lower growth rate.

Immediately Following the Increase in the Investment Rate, Output Grows