Question

While capital dilution lowers the value of k, capital widening raises the value of k in the Solow model. True/False

 

At the steady state, the economy’s growth rate is always equal to zero. True/False

 

 

In the Solow model with technological progress, the growth rate of GDP is the same as the population growth rate and the savings rate. True/False

 

Answer 1

An increase in the share of investment predicts a higher growth rate of output per worker, both in the short run and, more importantly, in the steady state.

So, the statement is true.

In the steady state, capital per worker is constant, so output per worker is constant. Thus, the growth rate of steady-state output per worker is 0.

So, the statement is true.

In the Solow model with technological progress, the growth rate of GDP is not the same as the population growth rate and the savings rate.

So, the statement is false.