Question

In the Solow model without technological progress and Cobb-Douglas production function, the K/Y ratio is:

a. increasing in population growth and the depreciation rate
b. is decreasing in the capital income share
c. is increasing in the level of technology A (or TFP)
d. increasing in the savings rate

Answer 1

In the Solow model without technological progress and Cobb-Douglas production function, the K/Y ratio is (d) increasing in the savings rate.

Step-by-step explanation:

In the Solow model without technological progress and a Cobb-Douglas production function, the K/Y ratio is d. increasing in the savings rate.

In the Solow model, the K/Y ratio represents the amount of capital (K) relative to output (Y). When the savings rate increases, it means that a higher proportion of income is saved and invested, leading to an increase in capital per worker. As a result, the K/Y ratio increases.

For example, if the savings rate increases from 10% to 20%, more capital will be accumulated per worker, resulting in a higher K/Y ratio.