Final answer:
The steady state equation for the basic Solow model, which does not consider population growth or technological change, is sY = (δ + n + g)K. It indicates the point where investment in new capital balances depreciation and the capital stock remains constant.
Step-by-step explanation:
The steady state equation for the basic version of the Solow model, which does not include population growth or technological change, is given by:
sY = (δ + n + g)K
Where:
s = The savings rate
Y = Output or total income
δ = Depreciation rate of capital
n = Population growth rate (n is zero in the basic version)
g = Technological growth rate (g is zero in the basic version)
K = Stock of capital
In this equation, the left side represents the total savings or investment in new capital, and the right side represents the breakdown, dilution, and enhancement effects on capital stock. At the steady state, investment in new capital exactly offsets the depreciation of existing capital, as well as the widening of capital due to population growth and technological improvements, leading to a situation where the capital stock, and hence output, stays constant over time.