On the Solow Diagram,an increase in productivity is shown by ________.
A)an upward shift of the depreciation plus capital dilution line
B)an upward shift of the investment function
C)a downward shift of the depreciation plus capital dilution line
D)a downward shift of the investment function

Question

Quizplus · Accepted Answer

An increase in productivity means that more output can be produced with the same amount of capital and labor. This is shown on the Solow diagram by an upward shift of the production function. In turn, this leads to a higher level of output which requires a larger level of investment to maintain the same level of capital per worker. Therefore, an upward shift of the investment function is required to maintain the new steady state.

On the Solow Diagram,an Increase in Productivity Is Shown by ________