In the Solow model, the steady state includes a positive rate of per capita output growth only when the model includes a positive rate of:

Question

Quizplus · Accepted Answer

According to the Solow model, steady-state output per capita growth equals technological progress multiplied by the amount of capital per capita raised to the 2/3 power, minus the rate of depreciation. Since the rate of depreciation is always positive, there will only be positive steady-state output per capita growth if there is positive technological progress (which raises the productivity of existing capital) to offset the negative impact of depreciation. Therefore, choice C) is the correct answer.

In the Solow Model, the Steady State Includes a Positive