Exogenous and Endogenous Economic Growth Models: Practice Questions and Solutions

Intermediate Macroeconomics Problems and Solutions - Section 14

See Mr. Stolyarov's complete index of Intermediate Macroeconomics Problems and Solutions here.

Problem 71. Which of these statements regarding the Solow economic growth model are true? More than one answer may be correct.

(a) Capital accumulation can influence the growth rate in the steady state of the Solow model.
(b) The way to increase growth at the steady state of the Solow model is to increase total factor productivity.
(c) At the stable steady state for an economy, gross investment is equal to depreciation.
(d) At the steady state, if savings increases, consumption will simply decrease so as to not affect the growth rate of output.
(e) In the Solow model, population growth acts to decrease the amount of capital per worker and shift up the depreciation line.
(f) Changes in the savings rate will shift the total production Y = f(K, L).
(g) Changes in the savings rate will influence the linear function (n + d)K.
(h) Changes in the savings rate will shift the function sY.
(i) Higher savings and investment rates will result in a larger capital stock at the steady state.

Solution 71. The following statements regarding the Solow economic growth model are true:

(b): The way to increase growth at the steady state of the Solow model is to increase total factor productivity.
(c): At the stable steady state for an economy, gross investment is equal to depreciation.
(d): At the steady state, if savings increases, consumption will simply decrease so as to not affect the growth rate of output.
(e): In the Solow model, population growth acts to decrease the amount of capital per worker and shift up the depreciation line.
(h): Changes in the savings rate will shift the function sY.
(i): Higher savings and investment rates will result in a larger capital stock at the steady state.

Problem 72. Which of these statements is true about the Golden Rule in the Solow economic growth model?