In the neoclassical growth model, the steady-state capital-labor ratio is determined by the equation
A)k = (n + d)y
B)k = s(n + d)
C)k = sy/(n + d)
D)k = y/(n - d)
E)k = (n + d)/sy

Question

Quizplus · Accepted Answer

The neoclassical growth model assumes that output (y) is a function of capital (k) and labor (L), with a constant returns to scale production function. In steady state, capital per unit of effective labor (k/L) is constant, which means that capital per worker (k/L x L = k) must also be constant. Thus, the steady-state capital-labor ratio (k/L) is equal to the savings rate (s) divided by the sum of the population growth rate (n) and the depreciation rate (d): k/L = s/(n + d). Since we want to solve for k, we multiply both sides by L to get k = sL/(n + d), and since L = y/(1 + n), we substitute to obtain k = sy/(n + d).

In the Neoclassical Growth Model, the Steady-State Capital-Labor Ratio Is