In the Solow model, increases in the rate of population growth and increases in the rate of technological progress both lower the steady state values of capital and output per efficiency unit. True or false: Therefore both are undesirable. If false, explain how they differ in their consequences for levels and growth rates of Y/L.
Answer) The given statement is True, If Population growth rate is assumed at the rate of n then it becomes an additional source of depletion of capital stock per capita. This is because net capital stock per capita not depletes due to depreciation but also due to population growth. It reduces steady state level of per capita capital stock and per capita output as compared to zero population growth.
In case of technology it was taken as exogenous as it is observed that productivity of labor increases with technical progress. Workers are more efficient with technology so they need more capital now.
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