In the Solow model,if productivity doesn't change,
A)the economy must eventually reach a steady state.
B)the capital-labor ratio must decline.
C)the capital-labor ratio must rise.
D)there can be no saving.

Question

Quizplus · Accepted Answer

In the Solow model, if productivity doesn't change, then the economy must eventually reach a steady state. This is because the capital stock and output per worker will grow at the same rate as the population and labor force, which means that the capital-labor ratio will remain constant. At the steady state, the economy reaches a balanced growth path where the growth rate is equal to the exogenous rate of technological progress. Thus, there will be no need for the capital-labor ratio to decline or rise, nor will there be any restriction on saving.

In the Solow Model,if Productivity Doesn't Change