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CFA Level 2
Economics

Understanding Slowing Growth in Solow's Model

Hard Economic Growth And Development Growth Theories

In the context of economic growth theories, Robert Solow developed a model that emphasizes the role of technological progress in determining long-term economic growth. Central to Solow's growth model is the concept of diminishing returns to capital. Consider the following scenarios related to the Solow growth model:

A country initially experiences high rates of investment in capital goods, but over time, the growth rate of its economy begins to slow down despite continuing investment. This scenario raises questions about the underlying mechanisms of capital accumulation and productivity.

Based on Solow's growth theory, which of the following statements best explains why the growth rate slows down as capital accumulation increases?

Hint

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