In the Solow growth model,

Question

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According to the Solow growth model, the steady-state level of income per capita is determined by the level of total factor productivity. Therefore, a country with higher total factor productivity will have a higher per capita income in the long run. Option A is incorrect because higher total factor productivity leads to a higher steady-state level of income per capita, which would lead to an increase in consumption per capita in the long run. Option B is incorrect because the Solow model doesn't take population growth into account. Option D is incorrect because business cycles refer to short-term fluctuations in output, not long-term differences in income per capita across countries. Option E is incorrect because the Solow model predicts that growth ultimately stops in the long run, but it doesn't necessarily imply that all countries will look the same.

In the Solow Growth Model