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Imagine a Solow–Swan model with the technology parameter (A) constant. The saving rate is θ, the population growth rate n, and the depreciation rate d. When the model has reached the steady state, the capital stock K will:Group of answer choicesBe constantBe rising at the rate nBe rising at the rate θ(Y/L)/(d + n)

Question

Imagine a Solow–Swan model with the technology parameter (A) constant. The saving rate is θ, the population growth rate n, and the depreciation rate d. When the model has reached the steady state, the capital stock K will:Group of answer choicesBe constantBe rising at the rate nBe rising at the rate θ(Y/L)/(d + n)

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Solution

In the Solow-Swan model, when the economy reaches a steady state, the capital stock (K) will be constant. This is because, in the steady state, the amount of new capital created by saving (which is a fraction θ of output Y) just balances the amount of capital that depreciates or is diluted by population growth. Therefore, the capital stock does not change, i.e., its growth rate is zero.

So, the correct answer is: "Be constant".

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