Question

The Solow model basically states that as more rural and backward economies start to develop, they will use more intensively their cheap labor and savings for investment more than already developed nations, and ____________ between rich and poor nations will eventually occur.

Answer 1

Answer:

The Solow model basically states that as more rural and backward economies start to develop, they will use more intensively their cheap labor and savings for investment more than already developed nations, and convergence between rich and poor nations will eventually occur.

Explanation:

The Solow growth model is an exogenous model of growth that tries to examine the changes in the level of output in an economy as a result of some changes in the economy. The changing conditions are; population, rate of savings and technological advancement. The Solow model named after Robert Solow who was a Nobel-prize economist winner, formed the foundation for modern theories of economic growth. Solow's growth models has a variety of assumptions as shown;

1. Rate of population growth is constant

2. The proportion of savings in the economy is constant.

3. The same technology is utilized by all companies in the economy for production.

4. The capital accumulation equation forms a relationship between; Present capital stock, future capital stock, the rate of capital depreciation, and level of capital investment.

Solow's model implied that as more rural and backward economies start to develop, they will use more intensively their cheap labor and savings for investment more than already developed nations, and convergence between rich and poor nations will eventually occur.