Assume a neoclassical growth model with constant returns to scale.Which of the following statements is TRUE?
A)a declining population growth rate will increase per-capita income
B)an increase in the savings rate will permanently increase the growth rate of output
C)an increase in the depreciation rate will increase the capital-labor ratio
D)technological advances will have no effect on the long-run growth rate of output
E)none of the above

Question

Quizplus · Accepted Answer

In the neoclassical growth model with constant returns to scale, a declining population growth rate will increase the capital-labor ratio, which in turn will increase per capita income. The savings rate and technological advancements can also play a role in increasing per capita income, but they are not true statements in the given options. An increase in the depreciation rate will decrease the capital stock, thereby decreasing the capital-labor ratio and decreasing per capita income in the long-run. Thus, option A is the correct choice.

Assume a Neoclassical Growth Model with Constant Returns to Scale