Question

In an economy with population growth at rate n, the change in capital stock per worker is given by the equation:_______.

A. Δk = sf(k) – δk.
B. Δk = sf(k) – (δ + n)k.
C. Δk = sf(k) + δk.
D. Δk = sf(k) + (δ + n)k.

Answer 1

B. Δk = sf(k) – (δ + n)k.

Step-by-step explanation:

The Solow Growth Model, developed by Robert Solow, a Nobel Prize winning economist. It was the first neoclassical growth model which was was built upon the Keynesian Harrod-Domar model. The modern theory of economic growth is given by the Solow Model.

The equation below gives us the change in capital stock per worker with population growth at rate n;

Δk = sf(k) – (δ + n)k.

Where k: capital stock per worker in period t

s: savings rate

δ: rate of depreciation of capital

n: labor or number of workers

sf(k): savings per capita multiplied by a fraction of income saved.