In the Solow model with a rate of population growth equal to zero: a) capital per worker grows forever

Economics Dec 14, 2020

In the Solow model with a rate of population growth equal to zero:

a) capital per worker grows forever.

b) there is a steady-state in which capital per worker is constant.

c) capital per worker shrinks forever.

d) capital per worker is indeterminate.

Expert Solution

The correct answer is b) there is a steady-state in which capital per worker is constant

This is because, at the golden rule level capital, the population growth is zero. It means that the population level remains constant. The technology is also assumed to keep constant at this level. The economy is at the maximum consumption level at this point. It leads to a constant capital-per worker as the economy stabilizes at this level.

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