Question

1. Assume that capital adequacy line is below savings per worker function, illustrate and explain what the outcome would be. 
2. Assume that capital adequacy line is above savings per worker function, illustrate and explain what the outcome would be. 
3. Assume that capital adequacy line is equal to the savings per worker function, illustrate and explain what the outcome would be. 
4. Illustrate and explain the Solow Growth Model.
5. Illustrate and explain the Solow Growth Model that is augmented with technology.

Answer 1

1) Higher expected returns to investor.

2)Low expected returns to investor.

3) Normal expected returns to investor.

4)The slow model analyze changes in level of output due to changes in population growth, saving rate and technogical advances in an economy.

5)If technology is added to the slow model,it creates a constant growth in productivity because it allows output, capital, population and consumption to grow at a constant rate.