Suppose that in the Solow Model of an economy with some positive savings rate, popu- lation growth rate, and rate of depreciation, k' is the steady state capital-labour ratio. Suppose ky and ką are capital-labour ratios such that k1 < kg < k*, and let g1, 92 be the growth rates of per capita output at k and ką respectively. Then
The question is based on Solow's growth model. This is perhaps the simple question I have asked till date(comparing to other questions). Please do not reject it again!
Consider the following two questions Q11 and Q26. The answers Q11 and Q26 are B and D respectively. Explain the following:
1. Please provide a complete explanation with proper reasoning as to why the answers differ.
2. Under what conditions can we compare the two growth rates g1 and g2. Please note that, in both questions, the growth rates here are of the same economy or nation.
More specifically, for Q11 we know that 'the further an economy is below its steady state, the faster the economy grows'; however this line of reasoning does not apply in Q26 why is that?
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