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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

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.

To determine

Diminishing returns of capital and growth.

Explanation

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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