Question #25
Reading: Reading 6 Economic Growth
PDF File: Reading 6 Economic Growth.pdf
Page: 12
Status: Unattempted
Correct Answer: B
Question
Which of the following concepts is uniquely associated with the neoclassical theory of economic growth?
Answer Choices:
A. In steady state GDP growth rate is equal to growth rate in total factor productivity divided by labor's share of total factor cost
B. diminishing marginal product of capital
C. In steady state, the rental price of capital is equal to additional output resulting from use of an additional unit of capital
Explanation
Neoclassical theory contends diminishing marginal productivity of capital but constant
marginal product of capital. In steady state, marginal product of capital (MPK) is equal to
the rental price of capital. MPK is the additional output resulting from an additional unit of
capital.