Economics · Endogenous Growth Theory
In endogenous growth theory, why does the simple AK model generate sustained long-run economic growth without diminishing returns to capital?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Technological progress is assumed to be purely exogenous
- 2Labour supply automatically grows at the same percentage rate as capital
- 3Broad capital includes human capital and knowledge spillovers, preventing aggregate returns to capital from diminishing✓
- 4Capital accumulation is directly subsidized by government authorities
Correct answer
Broad capital includes human capital and knowledge spillovers, preventing aggregate returns to capital from diminishing
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