True or False?
The statement is true. Suppose that the marginal product of technological capital (the return to technological invention) exceeds marginal product of other forms of capital. Then the total output of the economy will increase if a unit of capital is shifted to technological knowledge from other forms. As this happens, the principle of diminishing returns will imply that the marginal product of the expanding type of capital (technology) will fall relative to the marginal products of the other types of capital, eventually driving the marginal products of all types of capital to equality.
This assumes, of course, that the various types of capital are measured in a common unit---we define a unit of each type of capital to be the amount that can be obtained by sacrificing one unit of consumption under conditions where there is no investment and hence no adjustment costs. When investment is positive, there will be additional costs of blending the new capital in with the existing capital stock---these costs will increase with the level of investment. As a result of them, the rate of interest will fall as the level of investment increases even though the marginal product of capital remains constant.