Question

The endogenous growth predicted by the AK model is due to the assumption of a constant marginal product of capital True or false? Please include explanations, thanks!

Answer 1

TRUE

In the AK model, the output line is the upward sloping straight line. The line shows that the marginal product of capital is constant at each level. The growth rate of per capita income is directly proportional to savings and technology rate and inversely proportional to depreciation and population growth rate.

Y = AK

MPK = dy/dK = A

where A is the technology determinant and is constant. So, MPK is constant.

The endogenous growth, therefore, assmes that MPK remains constant throughout the expansion phase.

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