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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

Solutions

Chapter
Section
Chapter 12, Problem 4CQQ
Textbook Problem
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Because capital is subject to diminishing returns, higher saving and investment do not lead to higher

a. income in the long run.

b. income in the short run

c. growth in the long run.

d. growth in the short run.

Expert Solution
To determine
Diminishing returns of capital and growth.

Explanation of Solution

Option (c)

Since, capital is subjected to diminishing returns, the more capital an economy has, the less additional output the economy gets from an extra unit of capital. As a result, the growth eventually slows down in the long run, despite higher saving and investment. Thus, option ‘c’ is correct.

Option (a)

Eventhough capital is subjected to diminishing returns, higher saving and investment lead to income rise in the long run...

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