How will technological advancement impact the steady state level of capital in the Solow growth model?
A) It will have no effect.
B) It will increase the steady state level of capital.
C) It will decrease the steady state level of capital.
D) It will increase the steady state level in the short run but not the long run.
E) It will increase the steady state level in the long run but decrease the steady state level in the short run.

Question

Quizplus · Accepted Answer

In the Solow growth model, technological advancement increases productivity and therefore increases the marginal product of capital. This leads to an increase in the saving rate, and as a result, the steady state level of capital increases. This effect is known as the "Solow Residual" and is a key driver of long-term economic growth. Therefore, technological advancement will increase the steady state level of capital.

How Will Technological Advancement Impact the Steady State Level of Capital