Question

Which of the following changes would lead, according to the Solow model, to a higher level of long-run output per worker? A) Decreasing savings rate B) Increasing population growth rate C) Decreasing technological progress D) Increasing depreciation rate

Answer 1

The term output can be stated as the final product that a nation can produce by using the production factors. On the other hand, the output per worker measures the per-head availability of total output produced.

Answer 2

A) Decreasing savings rate:

Decreasing the savings rate will lead to lower investment, reducing capital accumulation.

This will lower the steady-state level of capital per worker and, consequently, the long-run output per worker.

B) Increasing population growth rate:

An increase in population growth rate will increase the labor force.

Initially, this will lead to higher output per worker due to increased labor input.

However, in the long run, the higher population growth rate will lead to a higher steady-state level of capital per worker, but it won't affect the long-run output per worker.

C) Decreasing technological progress:

A decrease in technological progress will reduce the rate of growth of total factor productivity.

This will reduce the rate of output growth, and in the long run, it will lead to a lower level of long-run output per worker.

D) Increasing depreciation rate:

An increase in the depreciation rate implies that the capital stock depreciates faster.

This will lead to a lower steady-state level of capital per worker and, consequently, a lower long-run output per worker.