Assuming diminishing returns,
A)the increase in output growth from an increase in the saving rate rises over time,and that,other things the same,rich countries should grow faster than poor ones.
B)the increase in output growth from an increase in the saving rate falls over time,and that,other things the same,rich countries should grow faster than poor ones.
C)the increase in output growth from an increase in the saving rate rises over time,and that,other things the same,poor countries should grow faster than rich ones.
D)the increase in output growth from an increase in the saving rate falls over time,and that,other things the same,poor countries should grow faster than rich ones.

Question

Quizplus · Accepted Answer

Diminishing returns suggest that as a factor of production, in this case, the saving rate, is increased, the increase in output growth will eventually start to decline. Therefore, option B and D are the only plausible choices. Additionally, given that poor countries have less capital and technology to begin with, they are likely to experience larger returns on investment, i.e., higher growth rates at lower saving rates. Therefore, option D is the most accurate as it suggests that poor countries may grow faster than rich ones, all other things being constant.

Assuming Diminishing Returns