I am exploring the importance of diminishing returns to capital in the Solow-Swan model. Assume an economy with a production function that exhibits constant returns to capital.. In each of the following cases, draw a Solow-Swan diagram and use is to explain whether and how the economy converges to a steady state. Clearly identify any steady state(s) or otherwise explain why there is no steady state.

(i) Assume the sum of population growth and the depreciation rate is greater than the saving rate.

(ii) Instead assume the sum of population growth and the depreciation rate is less than the saving rate.

(iii) Instead assume that the sum of population growth and the depreciation rate is equal to the saving rate. What is the importance of diminishing returns to capital in the Solow-Swan model?

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The longrun equilibrium in the SolowSwan model in which the capital stock per worker stays constant is known as the steady state The ratio of investme... View the full answer