Question

11. In the Solow model the key driver of economic growth is a) accumulation of human capital b) accumulation of physical capital c) technological progress d) quality of institutions Kt+1-K The capital accumulation of physical capital is the key equation 12. Let AK+1 of the Solow model, which is the following a) Kt+1 +(1- d)K b) AK41= I+(1 - d)K c) Kt41 Ki-dK d)AK1I- K 13. According to the Solow diagram, no matter if the initial level of capital, Ko, is smaller or larger than K (steady-state capital), since the economy will converge to its steady state. The reason for this is one of the following a) The production function exhibits diminishing returns b) The production function exhibits diminishing returns and a constant fraction of the capital stock depreciates every period c) The size of the workforce d) The productivity parameter

Answer 1

Due to presence of HOMEWORKLIB POLICY, I am answering 2 questions.

11. Ans: c. technological progress.

Explanation: Due to diminishing returns to capital, there is no long run growth coming out of capital. In steady state, per capita effective output is constant but per capita output rises at the rate of technological progress which is assumed to be exogenous.

12. Ans: a

Explanation: New capital stock = Investment + previous depreciated capital stock.

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