Question

Recall the definitions of endogenous and exogenous variables in Lecture 1. For the Solow growth model, identify which one of the following variables is an endogenous variable and which one is an exogenous variable. Here you have, per capita income (y), depreciation rate (δ), capital stock per capita (k), saving rate (s), population growth rate (n) and technological progress (g). Explain why one variable is endogenous or exogenous in the Solow model

Answer 1

In the Solow growth model, the endogenous variable is the capital stock per capita (k) and the exogenous variable is technological progress (g).

Step-by-step explanation:

In the Solow growth model, the endogenous variable is the capital stock per capita (k). This variable is endogenous because it is determined within the model and changes as a result of other factors, such as saving rate and depreciation rate. The exogenous variable in the Solow growth model is technological progress (g). This variable is exogenous because it is assumed to be determined outside of the model and its growth rate is not influenced by the other variables in the model.