Impact of Capital Deepening on Economic Growth

Hard Economic Growth And Development Capital Deepening

In an economy characterized by rapid capital deepening, firms have begun to invest heavily in advanced machinery and technology, resulting in higher productivity levels. During this period, the government introduces policies aimed at enhancing human capital through educational reforms and vocational training initiatives. The objective of these measures is to equip the workforce with the necessary skills to complement the new technology in the production process.

Given this context, which of the following statements best represents the primary effect of capital deepening on the economy?

Capital deepening primarily leads to an increase in labor supply and a decrease in wages.

Capital deepening enhances productivity but may result in diminishing returns if not accompanied by an increase in skilled labor.

Capital deepening will always lead to a proportional increase in GDP regardless of labor quality.

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