The logic behind the catch-up effect is that
A)workers in countries with low incomes will work more hours than workers in countries with high incomes.
B)the capital stock in rich countries deteriorates at a higher rate because it already has a lot of capital.
C)new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The catch-up effect refers to the idea that countries with low income can grow faster than countries with high income, because new capital adds more to production in a country that doesn't have much capital. This is because the marginal productivity of capital is higher in countries with low levels of capital, compared to countries with already high levels of capital. Therefore, the catch-up effect is based on the idea that the productivity gains from adding additional capital are higher in countries with low levels of capital to begin with.

The Logic Behind the Catch-Up Effect Is That