In the Solow model,an increase in the investment rate will _____ the amount of capital needed to achieve a steady state.
A) increase
B) decrease
C) not affect
D) have an unpredictable effect on

Question

Quizplus · Accepted Answer

According to the Solow model, an increase in the investment rate will increase the steady-state level of capital. This is because a higher investment rate leads to a higher level of savings and investment, which in turn leads to greater capital accumulation. Therefore, the amount of capital needed to achieve a steady state will also increase.

In the Solow Model,an Increase in the Investment Rate Will