To achieve high rates of growth of national output, the economy has to Options: A . &nbspborrow foreign capital B . &nbspreduce the rate of growth of population C . &nbspstep up the rate of savings D . &nbspincrease the rate of investment and reduce the capital output ratio

To achieve high rates of growth of national output, the economy has to

Question

To achieve high rates of growth of national output, the economy has to

Options:

A . borrow foreign capital

B . reduce the rate of growth of population

C . step up the rate of savings

D . increase the rate of investment and reduce the capital output ratio

Answer: Option D
Answer: (d)
The immediate effect of devoting a larger share of national output to investment is that the economy devotes a smaller share to consumption; that is, “living standards” as measured by consumption fall. The higher investment rate means that the capital stock increases more quickly, so the growth rates of output and output per worker rise.
According to Smith, in a developing economy, both income level and capital stock rise. In addition to this, the rate of capital accumulation also shows a tendency to increase.
This leads to an increase in the capital stock in successive periods as investment keeps on increasing. Another important factor that contributes to the progress of an economy is the successive decline in the incremental capital-output ratio due to the influence of capital on the productivity of labour.

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