True or false: The reason that capital accumulation eventually stops in the Solow Growth Model is...

True or false:

The reason that capital accumulation eventually stops in the Solow Growth Model is diminishing returns to capital.

Expert Solution

True

According to solow model, the production function exhibits diminishing returns to scale.

ie, increase in the quantity of inputs leads to decrease in the marginal productivity and vice versa.

so when capital is used in large amount, so due to diminishing returns no excess capital is used once economy achieve steady state

Rahul Sunny answered 2 years ago

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