Question

Your friend claims "Devoting a larger share of national output to investment would help restore rapid productivity growth." Having studied the Solow growth model, you respond with: a. "Devoting more output to investment would decrease output per worker and not help productivity growth in the long run." b."Devoting more output to investment would increase capital per worker and ultimately decrease output per worker." c."An increase in saving and investment would increase productivity per worker in the short run, but it would only have a level effect in the long run." d. "An increase in saving and investment would increase productivity per worker, but it would decrease total output."

Answer 1

Answer: C. Devoting more output to investment would increase capital per worker and ultimately decrease output per worker."

Explanation: Solow postulates a continuous production function linking output to the inputs of capital and labor which are substitutable.