In the Solow growth model,if the level of investment is greater than depreciation at the initial capital-labour ratio,then △k is ________,and the capital-labour ratio ________ toward the steady-state capital-labour ratio.

Question

Quizplus · Accepted Answer

If the level of investment is greater than depreciation at the initial capital-labor ratio, then the net investment (i.e., investment minus depreciation) is positive, which means that the capital stock will increase (i.e., △k>0). As a result, the capital-labor ratio will also increase as there are more units of capital per unit of labor, moving toward the steady-state capital-labor ratio. This is consistent with choice A.

In the Solow Growth Model,if the Level of Investment Is