The most surprising outcome of the Solow growth model is that
A)the population growth rate has no effect on the standard of living.
B)the capital-labor ratio has no effect on the output-labor ratio.
C)a higher rate of national saving does not lead to a permanently higher rate of output growth.
D)a higher rate of depreciation lowers the capital-labor ratio,but not the output-labor ratio.

Question

Quizplus · Accepted Answer

The Solow growth model concludes that a higher rate of national saving does not lead to a permanently higher rate of output growth. This is because, in the long run, the economy will reach a steady state where the capital-labor ratio and output per worker no longer grow, regardless of the savings rate. This implies that sustained economic growth can only be achieved through technological progress, which can increase the efficiency of labor and capital. This result is surprising because it suggests that traditional policies aimed at boosting savings rates may not be effective in promoting long-run economic growth.

The Most Surprising Outcome of the Solow Growth Model Is