Suppose that there are diminishing returns to capital.Suppose also that two countries are the same except one has less capital and so less real GDP per person.Suppose that both increase their saving rate from 3 percent to 4 percent.In the long run
A)both countries will have permanently higher growth rates of real GDP per person,and the growth rate will be higher in the country with more capital.
B)both countries will have permanently higher growth rates of real GDP per person,and the growth rate will be higher in the country with less capital.
C)both countries will have higher levels of real GDP per person,and the temporary increase in growth in the level of real GDP per person will have been greater in the country with more capital.
D)both countries will have higher levels of real GDP per person,and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

Question

Quizplus · Accepted Answer

In the long run, both countries will achieve higher levels of real GDP per person due to increased savings rates. However, the country with less capital will experience a greater temporary increase in growth because it benefits more from additional capital due to diminishing returns.

Suppose That There Are Diminishing Returns to Capital