In the Solow growth model of Chapter 7, for any given capital stock, the determines how much output the economy produces, and the determines the allocation of output between consumption and investment.
A)saving rate; production function
B)depreciation rate; population growth rate
C)production function; saving rate
D)population growth rate; saving rate

Question

Quizplus · Accepted Answer

In the Solow growth model, the production function determines how much output (Y) the economy produces for any given capital stock (K), represented as Y = F(K). The saving rate (s) determines the amount of output allocated towards investment (I), which is necessary to increase the capital stock and sustain economic growth in the long run. Therefore, choice C correctly identifies the two factors that determine output and its allocation in the Solow growth model.

In the Solow Growth Model of Chapter 7, for Any