In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, then capital grows at rate ______ and output grows at rate ______.

Question

Quizplus · Accepted Answer

In the Solow model, capital accumulation and population growth are the only drivers of economic growth. There is no technological progress assumed in the model. Therefore, if population grows at rate n and there is no technological progress, capital must also grow at rate n to maintain a constant per capita capital stock. However, since output per capita is determined by the production function, which assumes constant returns to scale, output per capita does not depend on the level of capital per capita, but rather on the efficiency of labor, which is assumed to be constant. Therefore, output per capita does not grow with population growth, and the growth rate of output is zero.

In the Solow Growth Model of an Economy with Population