The idea that saving equals investment in the Solow model means that a steady state can be reached only when
A)s = k.
B)s = n + d.
C)sf(k)= (s + d)k.
D)sf(k)= (n + d)k.

Question

Quizplus · Accepted Answer

In the Solow model, the idea that saving equals investment can be expressed as sf(k) = (n + d)k. This means that the amount of investment per unit of output (sf(k)) must be equal to the amount of capital required to maintain the existing capital stock against depreciation and population growth (n + d)k. Therefore, the steady state can only be reached when sf(k) = (n + d)k, making choice D the correct answer. Choice A is incorrect because s = k does not take into account population growth and depreciation. Choice B is incorrect because it only considers the requirements for maintaining the existing capital stock, but not for expanding it. Choice C is incorrect because it does not include the population growth term (n) in the equation.

The Idea That Saving Equals Investment in the Solow Model