The catch-up effect refers to the idea that[Fill in the blank]

Question

BlackTom AI · Accepted Answer

The question asks about the catch-up effect and provides four possible completions. We will evaluate each option on its own merits and potential misconceptions before tying them to the standard interpretation of the catch-up literature.

Option a: 'saving will always catch-up with investment spending.' This statement conflates saving and investment dynamics in a way that ignores how capital accumulation interacts with output growth. The catch-up effect is not solely about a mechanical equality or a universal tendency of saving to match investment; rather, it describes a relative advantage for poorer economies when they adopt higher capital-per-worker and benefit from higher marginal product of capital. Saying it will always catch up oversimplifies cross-country differences in technology, institutions, and growth rates, and implies a universal, unconditional relationship that is not supported by growth theory.

Option b: 'population eventually catches-up with increased output.' This option mixes up two distinct processes: population dynamics and output growth. The catch-up concept concerns how poorer countries can grow faster due to capital deepening and technology adoption, not a direct claim about population growth matching income growth over time. While population and output can interact (e.g., through labor supply), this statement mischaracterizes the core mechanism of the catch-up effect and is not the standard description of the concept.

Option c: 'it is easier for a country to grow fast and so catch-up if it starts out relatively poor.' This aligns with the classic idea of the catch-up or convergence hypothesis in growth economics: poorer economies can experience faster growth because their capital stock is relatively under-accumulated, allowing higher marginal returns on investment and more effective adoption of existing technologies. This captures the essence of why catch-up growth occurs under appropriate conditions (savings, investment, and technology transfer can translate into rapid growth when starting from a low base).

Option d: 'if investment spending is low, increased saving will help investment to "catch-up".' This statement asserts a specific causal path from saving to investment in a low-spending environment. While saving is a source of funds for investment, the claim that increased saving will help catch-up when investment spending is low is too narrow and ignores other frictions (like the need for productive investment opportunities, credit constraints, and institutional factors). It also presumes a direct, automatic translation of saving into investment without considering where those funds are channeled, thus making the claim overly simplistic.

In summary, option c is the one that coherently describes the core idea of the catch-up effect as understood in growth theory, while the other options either misstate the mechanism or rely on an oversimplified or inaccurate relationship between saving, population, and investment dynamics.

The catch-up effect refers to the idea that[Fill in the blank]

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