Although additional capital will lead to economic growth, there are limits. In other words, increases in capital alone cannot lead to sustained economic growth. This result is due to the fact that there are (a or b below) to capital

a. decreasing returns
b. increasing returns

Answer a

Explanation:

Economic growth is the increase in market value of goods and services produced in an economy during one year. Increase of one of the factors that contribute to growth such as capital leads to its rise. It seems that if nation invest new capital and if its rise is above rise of population, that economic growth is perpetual. However, that is not the case, due to diminishing returns. In an economy that has low capital per worker, investing more capital can increase such productivity. But if capital is invested in the economy that is for instance already equipped with appropriate machinery, productivity per worker will also rise, but not at the same level, as in the case of poorer country. Another problem is that capital stock growth leads to higher depreciation and more and more capital each year is necessary to replace the capital that has been spent, leaving only small amount of it that actually adds to capital stock.

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