The Solow model demonstrates that
A)in the absence of productivity growth, economic growth will turn negative in the long run.
B)in the absence of productivity growth, economic growth will reach a steady state of zero per-capita growth in the long run.
C)productivity growth must exceed the rate of growth in the population to avoid a steady state in the long run.
D)productivity growth will inevitably decline due to diminishing marginal productivity.

Question

Quizplus · Accepted Answer

The Solow model predicts that in the absence of productivity growth, an economy will eventually reach a steady state of zero per-capita growth in the long run, meaning that output per person will not increase over time. This occurs because as capital accumulates, the marginal product of capital falls, leading to diminishing returns. In the long run, the economy will adjust to a level of capital per worker where output per worker, and therefore per-capita growth, is zero.

The Solow Model Demonstrates That