In a Solow model with technological change, if the population grows at a 2 per cent rate and the efficiency of labour grows at a 3 per cent rate, then in the steady state, which of the following answers are correct?Note: This is a multiple-answer question; thus, more than one option may be correct.a.Output per effective worker grows at a 2% rate.b.Total output grows at a 3% rate.c.Output per actual worker grows at a 3% rate.d.Capital per effective worker grows at a 0% rate.
Question
In a Solow model with technological change, if the population grows at a 2 per cent rate and the efficiency of labour grows at a 3 per cent rate, then in the steady state, which of the following answers are correct?Note: This is a multiple-answer question; thus, more than one option may be correct.a.Output per effective worker grows at a 2% rate.b.Total output grows at a 3% rate.c.Output per actual worker grows at a 3% rate.d.Capital per effective worker grows at a 0% rate.
Solution
In the Solow model with technological change, the steady state is a situation where the capital per effective worker and output per effective worker are constant over time.
Step 1: Understand the growth rates given. The population grows at a 2% rate and the efficiency of labour grows at a 3% rate.
Step 2: Analyze each statement.
a. Output per effective worker grows at a 2% rate. This is incorrect. In the steady state of the Solow model, output per effective worker is constant, so it does not grow.
b. Total output grows at a 3% rate. This is incorrect. Total output in the Solow model grows at the rate of population growth plus the rate of technological progress. So, total output grows at a 5% rate (2% population growth + 3% technological progress).
c. Output per actual worker grows at a 3% rate. This is correct. In the Solow model, output per actual worker grows at the rate of technological progress, which is 3%.
d. Capital per effective worker grows at a 0% rate. This is correct. In the steady state of the Solow model, capital per effective worker is constant, so it does not grow.
So, the correct answers are c and d.
Similar Questions
Suppose a country’s population grows by 1% per annum, and its labour efficiency grows by 1% per annum. Then, according to the Solow model with technological progress, the steady-state growth rate of total output is ______.a.0%b.2%c.1%d.3%
In the Solow model, if the output per effective worker function y=, the population growth at a 2% rate, the labour efficiency growth at a 1.5% rate, which of the following is the growth rate of output per worker at steady state?
Solow growth model is a theory of economic growth. If the population increases by 1.5%, production efficiency increases by 2%. So, in the steady state, how much does total output increase?
Suppose the Solow model with technological progress describes the economy of Beta. Beta’s population growth is 0.5%, its rate of technological progress is 1%, its depreciation rate is 1.5%, and its saving rate is 4%. Thus, output per effective worker grows at a _____ rate in the steady state.a.1.5%b.0%c.0.5%d.1%
The per-effective worker Cobb-Douglas production function for a country described by the Solow growth model with population growth and technological progress is . Assume the saving rate (s) is 10%, the depreciation rate (δ) is 15%, the population growth rate (n) is 2%, and the rate of technological progress (g) is 3%.Based on the above information, answer the following questions.a. The steady-state level of capital per effective worker is
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.