Question

Explain the effect of an increase in (physical) capital on economic growth. (10marks)

In your answer, carefully explain the effect of increase in capital on real GDP, real GDP per capita and average labour productivity.

Answer 1

Increase in capital leads to economic growth by increasing capital leads to increase in productivity of labor new technology and more tools leads to more output per time period this leads to economic growth. Increase in capital leads to more output and real GDP increases. By increasing more capital leads to more productivity and generate more output per worker and raising real GDP per capita average labor productivity also increases as it can produce more output in same unit of time by increasing capital.

Please upvote if i'm able to help you it means a lot