Impact of Capital Deepening on Economic Growth

Medium Economic Growth And Development Capital Deepening

In recent years, Country X has focused on improving its infrastructure and investing significantly in technology to enhance productivity across various sectors. Economists believe that these investments represent capital deepening, which is expected to lead to higher economic growth in the long run.

Considering this scenario, which of the following statements best describes the impact of capital deepening on economic growth?

Capital deepening always leads to a proportional increase in GDP per capita.

Capital deepening increases the productivity of labor, which can lead to higher economic growth and improved living standards.

Capital deepening may result in diminishing returns to capital, limiting its impact on overall economic growth.

Hint

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