The key difference between the Solow model and the production model is that the:
A) Solow model endogenizes the process of capital accumulation.
B) production function model endogenizes the process of capital accumulation.
C) Solow model uses different values for the capital share.
D) Solow model does not contain a productivity measure.
E) Solow model exogenizes the process of capital accumulation.

Question

Quizplus · Accepted Answer

The Solow model is based on the idea that capital accumulation is an endogenous process, meaning that it is determined within the model. In contrast, the production function model assumes that the level of capital is exogenous, or determined outside the model. Therefore, in the Solow model, changes in the saving rate or technological progress can have a direct impact on the rate of capital accumulation and, by extension, economic growth. This is an important difference between the two models.

The Key Difference Between the Solow Model and the Production