Question

33. Compare the impact of population growth rate on level of per capita income in the Solow growth model and Romer’s endogenous growth model with deliberate investment in R&D.

Answer 1

Solution:

In the Solow growth model, an increase in the population growth rate increases the aggregate output growth rate but has no permanent effect on the growth rate per capita output. An increase in the population growth rate lowers the steady-state level of per capita income.

 

In Romer’s endogenous growth model, an increase in the population growth rate leads to an increase in the level of per capita income with deliberate investment in R&D.