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Because of diminishing returns to capital, further increases in the quantity of capital in China would result in ________ in real GDP per worker,

Answer :

Final answer:

An increase in the quantity of capital in China will initially lead to a rise in GDP per worker due to capital deepening, but this increase will eventually diminish, demonstrating the law of diminishing returns to capital. Such low-income economies like China can potentially converge with high-income countries through enhancements in capital per worker. The adverse effects of diminishing returns can be offset by technological advancements.

Explanation:

Because of the law of diminishing returns to capital, further increases in the quantity of capital in China would result in lower increases in real GDP per worker. To elaborate, the concept of 'diminishing returns to capital' refers to a situation where, after a certain point, each additional unit of capital will produce less output than the previous unit. Hence, while increasing capital initially leads to a rise in GDP per worker, the pace of this increase will diminish over time. Keep in mind that China, like many low-income countries, has lower levels of human and physical capital. Therefore, investments in capital deepening (increasing the amount of capital per worker) can lead to larger marginal effects in these nations, compared to high-income countries where such levels are already relatively high. As such, these low-income economies, including China, could gradually converge with the levels that high-income nations achieve. Moreover, let's not overlook the role of technological advancements. In many growing economies, the deepening of human and physical capital is paired with increasing technology. These technological gains can potentially offset the diminishing returns associated with capital deepening, contributing towards continuous growth in GDP per worker even as capital increases.

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