In the Solow model, saving and investing in additional factories and computers does ________ output to grow in the ________ run if the economy is below Y*. But, in the long run, the ________ returns to capital accumulation lead the return to these investments to fall.
A) lead; medium; diminishing
B) lead; long; increasing
C) lead; medium; increasing
D) not lead; medium; diminishing
E) not lead; long; increasing

Question

Quizplus · Accepted Answer

In the Solow model, saving and investing in additional factories and computers does lead to output growth in the medium run if the economy is below its steady-state output level (Y*). However, in the long run, diminishing returns to capital accumulation cause the return on these investments to decrease.

In the Solow Model, Saving and Investing in Additional Factories