Question

Shortly before the fall of the Soviet​ Union, the economist Gur Ofer of the Hebrew University of​ Jerusalem, wrote​ this: ​"The most outstanding characteristic of Soviet growth strategy is its consistent policy of very high rates of​ investment, leading to a rapid growth rate of​ [the] capital​ stock." ​

Explain why this turned out to be a veru poor growth strategy.

Answer 1

there were diminishing returns to capital.

Step-by-step explanation:

The single most important factor that determines the long run growth rate of an economy is productivity. When productivity increases, you are able to obtain a larger output using the same amount of resources. Generally in a national level, production increases result from increasing human capital (more education, more training) or technological innovation like automation that increase total output while keeping decreasing or keeping inputs in the same level.

In macroeconomics, when only one factor of production is increased, e.g. capital in old USSR, while the other factors (land, labor, technology) remain constant, the output per unit of the increasing factor will tend to diminish. In other words, you will need more capital every time to increase output in the sustained manner. E.g. in order to increase productivity by 1%, you need 2% increase in capital, but to increase productivity by 2%, you need a 5% increase in capital.

Answer 2

C. there were diminishing returns to capital.

Step-by-step explanation:

The economist Gur Ofer of the Hebrew University of​ Jerusalem was shortsighted in his conclusions about the Soviet economy.

Their consistency in pushing for investment over the long run led to diminishing returns due to excess capital.

The lesson therefore is that an economys growth could be affected by influx of capital if other steps are not taken by the Central bank and the Government.