In the Solow growth model, the steady state level of output per worker would be higher if the _____ increased or the _____ decreased.

Question

Quizplus · Accepted Answer

According to the Solow growth model, the steady state level of output per worker is given by the equation Y* = (s/(n+δ))^(1/α), where s is the saving rate, n is the population growth rate, δ is the depreciation rate, and α is the elasticity of output with respect to capital. Holding all else constant, an increase in the population growth rate (n) would lead to a lower steady state level of output per worker, while a decrease in the depreciation rate (δ) would lead to a higher steady state level of output per worker. Therefore, choice C is the best answer, as it correctly identifies these two factors and their effect on the steady state level of output per worker.

In the Solow Growth Model, the Steady State Level of Output