In the Solow model, technological progress is represented by: A. An increase in the depreciation rate B. A shift in the production function C. A decrease in the savings rate D. A decrease in the labor force participation rate
Question
In the Solow model, technological progress is represented by: A. An increase in the depreciation rate B. A shift in the production function C. A decrease in the savings rate D. A decrease in the labor force participation rate
Solution
In the Solow model, technological progress is represented by B. A shift in the production function.
Here's why:
The Solow model is an economic model of long-run economic growth set within the framework of neoclassical economics. It tries to explain long-run economic growth by looking at capital accumulation, labor or population growth, and increases in productivity, commonly referred to as technological progress.
A. An increase in the depreciation rate: This would not represent technological progress. Instead, it would represent the rate at which the capital stock becomes obsolete or wears out.
C. A decrease in the savings rate: This would not represent technological progress either. Instead, it would represent changes in the proportion of income that is saved and potentially invested.
D. A decrease in the labor force participation rate: This would not represent technological progress. Instead, it would represent changes in the proportion of the working-age population that is actively engaged in the labor market.
B. A shift in the production function: This is the correct answer. In the Solow model, technological progress is represented by a shift in the production function. This is because technological progress allows the same amount of inputs (like labor and capital) to produce more output, which can be represented by a shift upwards in the production function.
Similar Questions
The Solow model assumes that the rate of technological progress is: A. Constant over time B. Decreasing as the economy grows C. Dependent on the level of government investment D. Unrelated to economic growth
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Suppose the Solow model with technological progress describes the economy of Beta. Beta’s population growth is 1%, its rate of technological progress is 0.5%, its depreciation rate is 1%, and its saving rate is 4%. Thus, output per worker grows at a _____ rate in the steady state.a.0.5%b.1.5%c.0%d.1%
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