In the Solow model,saving and investing in additional factories and computers does __________ .But in the long-run,the __________ accumulation leads the return to these investments to fall.
A)lead output to grow in the medium run;diminishing returns to capital
B)lead output to grow in the long run;increasing returns to capital
C)lead output to grow in the medium run;increasing returns to capital
D)not lead output to grow in the medium run;diminishing returns to capital
E)not lead output to grow in the long run;diminishing returns to capital

Question

Quizplus · Accepted Answer

In the short run, an increase in investment leads to output growth due to the additional capital being used more efficiently. However, as capital accumulates over time, the marginal productivity of each additional unit of capital falls, leading to diminishing returns to capital in the long run. Therefore, choice A is correct as it correctly identifies the short-run growth effect and the long-run effect of diminishing returns to capital.

In the Solow Model,saving and Investing in Additional Factories and Computers