In a growth model with endogenous population growth and an investment requirement that rises slowly at first then rises sharply and eventually flattens out, we can get
A)three steady-state equilibria, only one of which is stable
B)three steady-state equilibria, only two of which are stable
C)three steady-state equilibria, all of which are stable
D)one stable steady-state equilibrium, but only if the savings rate is high enough
E)both B and D are possible

Question

Quizplus · Accepted Answer

In models with endogenous population growth and an investment requirement that changes shape (slow rise, sharp increase, then flattening), the dynamics can lead to multiple steady-state equilibria due to the non-linearities introduced by the changing investment requirement. Specifically, it's possible to have three steady-state equilibria with two being stable (option B) depending on the parameters of the model, including the savings rate and the specifics of the investment requirement curve. Additionally, there could be a scenario where only one stable steady-state equilibrium exists, and it's contingent upon a sufficiently high savings rate (option D). Thus, both scenarios B and D are plausible outcomes in such a model, making option E the correct choice.

In a Growth Model with Endogenous Population Growth and an Investment