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Imagine that there is a technological advancement which increases the productivity of capital. Which variable in...

Imagine that there is a technological advancement which increases the productivity of capital. Which variable in the model should we increase? Show the effect of this on steady-state capital and output on the usual graph.

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Answer #1

The steady state equation of an economy is given by:

Where, k is the steady- state kevel of capital.

= Rate of depriciation

n= rate of growth of population

g= rate of technological growth.

There is a growth in the rate of technological progress as a result of technological advancement. As g icreases, the slope of the depreciation line would increase.

As the slope of the depreciation line increases, the steady state capital became k1. The output per worker remains the same, as there is no alteration of the labour force of the economy.

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