Consequences of Capital Deepening on Economic Growth

Very Hard Economic Growth And Development Capital Deepening

In an economy that has experienced substantial capital deepening over the last decade, a recent report indicates improvements in productivity and output per worker. Economists are analyzing the effects of this capital deepening on overall economic growth. They note that while increased capital per worker likely leads to higher productivity, the sustainability of this growth also depends on other factors such as technological advancements, labor quality, and resource allocation.

Considering these factors, which of the following statements correctly identifies a consequence of capital deepening on economic growth?

Capital deepening primarily leads to diminishing returns in productivity, eventually stalling economic growth.

Frequent capital deepening in an economy guarantees continuous economic growth irrespective of other contributing factors.

Capital deepening can enhance productivity and economic growth but may reach a point where additional capital has less impact if not complemented by technological innovations.

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