Question

Which of the following are an implication of the Solow growth model?

a. Higher saving rates imply permanently higher growth rates.
b. Higher saving rates imply higher levels of capital per worker in the long-run, but not higher growth.
c. All countries will converge to the same income level in the long-run.
d. Countries with large amounts of natural resources have both high output levels and high saving rates

Answer 1

According to the Solow growth model, higher saving rates lead to higher levels of capital per worker but do not permanently increase growth rates; economic convergence is possible but depends on several factors.

Step-by-step explanation:

The implication of the Solow growth model relevant to the given options is that higher saving rates imply higher levels of capital per worker in the long-run, but not permanently higher growth rates. This is because while increased savings can lead to greater investment in physical and human capital, thus raising the level of capital per worker, it does not change the long-term growth rate, which eventually returns to the steady-state growth rate determined by factors like technology growth and population growth. The growth model also indicates that economic convergence can take place, allowing countries with lower levels of GDP per capita to catch up with those with higher levels, but this is contingent upon various factors including investment in capital and technology.