At what level of national income is long-run equilibrium achieved?
Show answer Hide answer
Answer: D. All investment is used to maintain the existing capital stock at its current level
Explanation
Steady-state equilibrium occurs when gross investment exactly equals total capital depreciation. Capital stock remains constant because new investment replaces worn-out machines. Economic growth from capital accumulation ceases once this specific balance is reached. Solow growth models demonstrate how capital accumulation drives long-term economic expansion. Depreciation continuously wears down existing physical capital assets over time. Net investment becomes zero in steady state while output per worker stabilizes.
Countries reach a mature developmental plateau where technological progress drives further growth. Policy makers monitor capital depreciation rates to ensure adequate infrastructure maintenance. Sustained long-term growth beyond steady state requires continuous technological innovation. Economic growth being zero is incorrect because technological progress can still drive growth. All investment used in manufacturing ignores capital needs in other crucial sectors. Economic growth growing continuously is inaccurate once the steady state is attained.
Related questions
Q1. How is the marginal propensity to withdraw calculated?
Show answer Hide answer
Answer: C. MPS + MPT + MPM
The marginal propensity to withdraw aggregates all leakages from the circular flow income. Savings, taxes, and imports represent the three primary leakages in an open economy. Summing these marginal propensities yields t...
Q2. All of the following are typical characteristics of low-income economies except ?
Show answer Hide answer
Answer: D. a per capital GNP of more than $900
Low-income economies exhibit gross national product per capita levels far below nine hundred dollars. International financial institutions classify low-income countries using strict per capita thresholds. Economies excee...
Q3. What assumptions are foundational to the marginal product model?
Show answer Hide answer
Answer: A. individuals pay the full cost of their education
Human capital theory assumes students bear all direct and indirect costs of schooling. Individuals invest in themselves expecting higher future earnings to compensate expenses. Education functions as an investment that e...
Q4. Besides cotton, what is the country's other primary agricultural export?
Show answer Hide answer
Answer: B. cotton vast products
Cotton waste items are generated during processing and serve as secondary export goods. Textile manufacturing yields various byproducts that find international market demand. Agricultural export data highlights cotton de...
Q5. What does Marginal Revenue Product measure?
Show answer Hide answer
Answer: A. Upward sloping due to the law of demand
Marginal Revenue Product slopes downward due to the law of diminishing returns in production.
Q6. A Liquidity Trap condition materializes at a_______________?
Show answer Hide answer
Answer: B. Very low rate of interest
A liquidity trap occurs when interest rates drop to very low nominal levels. Public preference for holding liquid cash surges because bond yields offer negligible returns. Monetary authorities lose policy effectiveness a...