Once a country is wealthy,

Question

a. it is nearly impossible for it to become relatively poorer.
b. it may be harder for it to grow quickly because of the diminishing returns to capital.
c. capital becomes more productive due to the "catch-up effect."
d. it no longer needs any human capital.
e. none of the above is true.

Answer 1

The correct answer is:

b. it may be harder for it to grow quickly because of the diminishing returns to capital.

Wealthier countries often experience slower growth rates because as capital accumulates, the incremental benefit from additional capital decreases, which is known as diminishing returns to capital. This means that while they may be wealthy in absolute terms, their potential for rapid growth may become more limited compared to developing countries that are catching up.