The catch-up effect refers to the idea that:

• A. countries with higher initial levels of income tend to catch up with those with lower initial levels of income
• B. economic growth is independent of a country's starting level of income
• C. developed countries always maintain a higher growth rate than developing countries
• D. countries with lower initial levels of income tend to grow more rapidly than countries with higher initial levels of income

Answer: (D)

Verified step by step guidance

1. Understand the concept of the catch-up effect in economic growth theory, which suggests that poorer countries (with lower initial income levels) tend to grow faster than richer countries, allowing them to 'catch up' over time.
2. Recognize that this effect occurs because countries with lower income can adopt existing technologies and practices from richer countries, leading to higher marginal returns on investment.
3. Note that the catch-up effect implies a negative relationship between initial income levels and subsequent growth rates, meaning growth rates tend to be higher when starting income is lower.
4. Contrast this with the incorrect statements: growth is not independent of initial income, and developed countries do not always maintain higher growth rates than developing countries.
5. Summarize that the correct interpretation of the catch-up effect is that countries with lower initial income levels tend to grow more rapidly than those with higher initial income levels.