In a steady-state balanced-growth equilibrium, each of the following is true except
A) the capital intensity of the economy is stable.
B) the economy's capital stock is growing faster than its level of real GDP is growing.
C) the capital-output ratio is constant.
D) the economy's capital stock and its level of real GDP are growing at the same proportional rate.

Question

Quizplus · Accepted Answer

In a steady-state balanced-growth equilibrium, the economy's capital stock and its level of real GDP grow at the same proportional rate, not at rates where one is faster than the other. This means the capital-output ratio remains constant, indicating that choice B is incorrect as it suggests the capital stock grows faster than real GDP, which contradicts the definition of a balanced-growth equilibrium.

In a Steady-State Balanced-Growth Equilibrium, Each of the Following Is