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CFA Level 2
Economics

Understanding Capital Deepening in Economic Growth

Hard Economic Growth And Development Capital Deepening

In a developing economy, increasing investment in capital goods plays a crucial role in enhancing productivity. This process is known as capital deepening. Consider the following scenarios:

1. A country decides to invest heavily in advanced machinery for its manufacturing sector, expecting it to boost output per worker.

2. Another country focuses on improving workers' skills through education and training programs, while maintaining its current capital stock.

3. A third country increases its physical capital through infrastructure development and the construction of new factories, also aiming to attract foreign direct investment.

Which of these scenarios primarily illustrates the concept of capital deepening?

Hint

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