In the simple Solow model, we assume:
A) the depreciation rate is negative.
B) net investment is always positive.
C) TFP equals one.
D) labor is exogenous.
E) the saving rate changes frequently.

Question

Quizplus · Accepted Answer

The simple Solow model assumes that labor is exogenous, meaning it is not affected by the model itself. This is often considered a simplification as changes in the model can affect labor supply or demand, but it is a key assumption in the simple Solow model. The other choices are not true assumptions of the model; the depreciation rate is usually positive, net investment can be negative in the short run, TFP can vary across countries and over time, and the saving rate is often assumed to be constant in the model.

In the Simple Solow Model, We Assume