Final answer:
The Solow-Swan model does have a steady-state capital stock in this setting. The dynamics of Kt depend on the values of s and d, with Kt increasing if s > d, remaining constant if s = d, and decreasing if s < d. This example violates the standard assumptions about the production function.
Step-by-step explanation:
In the Solow-Swan model, the steady-state capital stock is the level of capital that leads to a constant level of output per worker in the long run. In this setting, since the production function is linear and there is no productivity or employment growth, the Solow-Swan model does have a steady-state capital stock. The dynamics of capital, Kt, in this economy can be explained using the investment and depreciation rates. The investment rate, s, represents the proportion of output saved and invested, while the depreciation rate, d, represents the proportion of capital that depreciates each period.
The dynamics of Kt depend on the values of s and d. If the investment rate, s, is higher than the depreciation rate, d, then the capital stock, Kt, will increase over time. If s is equal to d, then the capital stock will remain constant. However, if s is lower than d, then the capital stock will decrease over time.
This example violates the standard assumptions about the production function, as it assumes linearity and no productivity or employment growth. In reality, production functions are usually non-linear and factors such as technological progress and population growth contribute to productivity and employment growth.