Question

In the Solow Model, capital is subject to _____________________. So as you add additional units of capital to other fixed resources, there comes a point where more capital does not increase output as much as it did before.

A) increasing returns B) the endowment effect C) diminishing returns

2) The Solow Model implies that countries with smaller initial capital stocks should grow rapidly. This implies that:

A) poorer countries should eventually “catch-up” to richer countries (conditional convergence) B) poorer countries are bound to experience explosive growth which will propel their economic output far beyond that of rich countries C) the growth rates between rich and poor countries is bound to diverge

3) In the Solow Model, the point where investment is equal to depreciation is known as the ______________.

A) steady state B) bliss point C) growth acceleration point D) warp drive

4) What part of the Solow model can help explain cross-country differences?

A) different depreciation rates B) different savings rates C) different population growth rates D) all of the above

Answer 1

a) "C"

Diminishing return, that is why as we add up more capital the output is not increased much.

b) "A" poor nations will catch up to the rich nations what we know as conditional convergence. Biggest conditions being technological advantage.

c) "A" the point is steady state.

d) "D" all the above options are correct.