In the Solow growth model of Chapter 8, for any given capital stock, the ______ determines how much output the economy produces and the ______ determines the allocation of output between consumption and investment.

Question

Quizplus · Accepted Answer

In the Solow growth model, the production function determines how much output an economy produces given a certain amount of capital stock. The saving rate, on the other hand, determines how much of that output is diverted towards investment (as opposed to consumption), which can increase future capital stock and therefore future output levels. Depreciation rate and population growth rate are also important factors in the model, but they do not directly determine output or the allocation of output between consumption and investment.

In the Solow Growth Model of Chapter 8, for Any