Question

In the Solow growth model without population growth or technological progress, if investment is greater than depreciation, the capital stock will ____ and output will ____ as the economy converges to the steady state.

Answer 1

Answer:

Increase, increase

Explanation:

The correct answers to the blanks are;

First blank : Increase

Second blank : Increase

The Solow Growth Model is a model used in economics to measure the development in economy considering the changes in the level of output over time as a consequence of changes in the population. It also takes account the investment in economy and then the depreciation involved

This model was presented by Robert Solow an Amercian economist

Answer 2

Answer:

In the Solow growth model without population growth or technological progress, if investment is greater than depreciation, the capital stock will increase and output will increase as the economy converges to the steady state.

Explanation:

A steady-state happens when there is efficient use of natural resources and fair distribution of the wealth generated from the development of the nations resources.

In Solow model states that economic growth is the result of three factors: labor, capital, and technology and the equilibrium growth path is a steady state in which “level variables” such as Investment and Output grow at constant rates and the ratios among key variables are stable.