Question

Solow Growth Model Which of the following best describe Steady State? A. output growth accelerates B. investment is balanced by depreciation C. investment exceeds depreciation D. the capital labor ratio increases ° Classical versus Endogenous Growth Models One significant disctinction between the classical and endogenous models is O A. only endogenous models explain perfect competition B. both models use constant returns to scale O O C. classical models utilize constant returns to scale, endogenous models employ increasing returns to scale D. Only endogenous models employ increasing returns to scale

Answer 1

SOLOW GROWTH MODEL

As long as the level of depreciation per worker is lower than the level of investment per worker, the economy will keep adding to the level of capital stock. But once the level of investment equates the level of depreciation, the level of steady state equilibrium is reached. At this point there is no addition to the capital stock but only that much is being invested that covers the depreciation level. Thus, Option B. investment is balanced by depreciation is correct.