If a larger share of national output is devoted to investment, starting from an initial steady-state capital stock below the Golden Rule level, then productivity growth will:

Question

Quizplus · Accepted Answer

Increasing the share of national output devoted to investment increases the economy's capital stock, eventually leading it to the Golden Rule level. In the short run, productivity growth increases due to the additional capital used in production, but in the long run, productivity growth will continue to increase as the economy approaches the Golden Rule level. Therefore, productivity growth will increase in both the short run and the long run.

If a Larger Share of National Output Is Devoted to Investment