- CFA Exams
- CFA Exam: Level II 2021
- Study Session 4. Economics
- Reading 11. Economic Growth and the Investment Decision
- Subject 5. Theories of growth
CFA Practice Question
According to the neoclassical growth theory, in the long run, if there is an increase in the population growth rate, capital per capita will ______ (increase? decrease? remain the same?), output per capita will ______ (increase? decrease? remain the same?), and the economy's growth rate will ______ (increase? decrease? remain the same?).
Correct Answer: decrease, decrease, increase.
User Contributed Comments 8
| User | Comment |
|---|---|
| PhiWong | Why economy growth rate us increased by increasing population growth rate? |
| letg | just because interst rate up -> more incentives to save -> more capital |
| george2006 | In the long run, it will reach the steady state where real interest rate equal to the target rate and economy stops growth. |
| thekapila | As per this theory. if population grows then there will be more capital provided so capital per capita will decrease(demand/supply) and also for same reason output per capita will decrease and now economy's growth rate will increase because this theeory is based on preserving capital and saving so population growth will bring more savings and hence economic growth increase but only till new technology advances. |
| shash0678 | If output per capita is decreasing (as is capital per head), how is it causing economic growth? |
| joywind | when the output /person is down, according to diminishing returns, the growth will increase. |
| dobeedoi | i think the kapilla answer seems referred to classical theory. if not,it should be 'if population grows then there will be more LABOUR provided so capital per head will decrease... |
| quanttrader | more hours, capital constant and hence: capital / hr s will decrease; therefore output / hr will also decrease (positive correlation), and growth rate will increase due to more aggregate hours, (just not on a per head/hr basis). |