Question

1) In the steady state of the Solow model with technological progress, which of the following variables is not constant?

(a) capital per effective worker

(b) the real rental price of capital

(c) the real wage

(d) the capital-output ratio

2) The U.S. economy has more/less capital than at the Golden Rule steady state, suggesting that it may be desirable to

increase/decrease the rate of saving.

3) The purpose of  exogenous/endogenous growth theory is to explain technological progress. Some of these models do so by questioning the Solow model's assumption of increasing/diminishing/constant returns to capital.

4) Models of Schumpeterian creative destruction aim to explain:

(a) how old capital is best retired and replaced with new capital.

(b) why seeming technological progress can reduce average incomes.

(c) how entrepreneurs with new products displace incumbent producers.

(d) why economies grow quickly after suffering the ravages of war.

Answer 1

Question 1) option c)

In steady state , per capita output is constant ., Hence real rental price , which is MPK , also constant.

Since k is constabt, hence y is constant, thus capital to output ratio is constant.

Real wage which is MPL , is not constant ,bcoz it depends on Labor which is not constantvin steady state

Q2)) less & increase

As lower capital level, so increase saving rate to increase investment

Q3) endogenous & diminishing.

Solow model assumes diminishing returns to capital.

Q4) option c)

Creative destruction theory imply growth via displacements from technical progress.

It says that introduction of new products is good for Consumers, but may be bad for incumbent producers, who may be forced to leave the market.