Consider a country that is initially in a steady state. Suppose the savings rate increases. Furthermore, the population growth rate increases by 1% but the capital depreciation rate falls by 1%. According to the Solow-Swan model, the per capita capital stock increases and the country moves to a new, higher steady-state level of per capita income.

Consider Solow Country, which is described by the Solow-Swan model. Let the savings rate be θ = 0.8; let the population growth rate be n = 0.05; Let the depreciation rate d = 0.05. If per capita income y = 100 and per capita capital stock k = 1000?

a) Replacement investment is 100, savings is 80, and k will increase toward the steady-state per capita capital stock.

b) Replacement investment is 100, savings is 60 and k will decrease towards the steady state capital stock per capita

c) Replacement investment is 100, savings is 80, and k will decrease toward the steady-state per capita capital stock.

d) Replacement investment is 100, savings is 80, and k is in the steady-state per capita capital stock.

 

Answer rating: 100% (QA)

The correct answer is c Rep... View the full answer