The traditional view of the production process is that capital is subject to
A)diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.
B)diminishing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries.
C)increasing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.
D)increasing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries.

Question

Quizplus · Accepted Answer

The traditional view of the production process posits that capital is subject to diminishing returns. This implies that as an economy accumulates more capital, each additional unit of capital adds less to output than the previous unit. Consequently, poorer countries, which have less capital to begin with, should experience faster growth when they add more capital, compared to richer countries with already substantial amounts of capital. This is because the initial units of capital in a poor country are far from the point of diminishing returns that richer countries face.

The Traditional View of the Production Process Is That Capital