Question

Which of the following statements about the Solow growth model is FALSE?

• A. The higher steady-state capital per capita, the higher the output/income per capita.
• B. The higher output/income per capita, the higher consumption per capita.
• C. Golden-rule capital per capita must be a steady state, but not all steady-state is also a golden-rule.
• D. Golden-rule capital per capita can be achieved by setting the saving rate at the appropriate level.

Answer 1

Let us examine the given options

A. The higher steady-state capital per capita, the higher the output/income per capita.

True, output per capital is directly proportional to the capital per capita.

B. The higher output/income per capita, the higher consumption per capita.

False, consumption depends upon savings.

C. Golden-rule capital per capita must be a steady state, but not all steady-state is also a

golden-rule.

True, Golden rule capital per capita is a special case of steady state capital per capita.

D. Golden-rule capital per capita can be achieved by setting the saving rate at the appropriate level.

True. we can achieve golden rule capital per capita by setting the saving rate a appropriate level.

Correct option is

B. The higher output/income per capita, the higher consumption per capita.