Question

In the Solow growth model with population growth, but no technological progress, the steady-state amount of investment can be thought of as a break-even amount of investment because: the quantity of investment just equals the amount of:

A) output needed to achieve the maximum level of consumption per worker.

B) capital needed to replace depreciated capital and to equip new workers.

C) saving needed to achieve the maximum level of output per worker.

D) output needed to make the capital per worker ratio equal to the marginal product of capital.

Answer 1

Answer: the steady-state amount of investment can be thought of as a break-even amount of investment because: the quantity of investment just equals the amount of: "B) capital needed to replace depreciated capital and to equip new workers."

Explanation: According to the Solow growth model an economy is in a steady state when it makes the most efficient use of its resources. That is, the state in which the saving or investment is equal to the depreciation of capital.