Implications of Capital Deepening

Very Hard Economic Growth And Development Capital Deepening

Consider a country that is experiencing rapid capital deepening due to increased investments in physical capital and technological advancements. Over the past decade, this nation's capital-to-labor ratio has significantly increased, which has, in turn, contributed to higher productivity levels in key sectors such as manufacturing and information technology.

As an economist analyzing the implications of capital deepening, which of the following statements best captures the unique outcomes associated with this process?

Capital deepening typically leads to diminishing returns when the amount of capital per worker exceeds a certain threshold, potentially stalling productivity growth.

In a scenario of capital deepening, labor markets may experience upward pressure on wages due to the enhanced productivity of workers, leading to increased consumption and reinvestment.

Enhanced capital deepening should always result in significant inflationary pressure due to increased demand for goods and services produced by the newly acquired capital.

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