Question
Consider the Solow Model without technology a.Explain in words and using the equations what is meant by steady state of an economy. (1 mark for
Consider the Solow Model without technology
a.Explain in words and using the equations what is meant by steady state of an economy. (1 mark for the explanation in words, 1 mark for the explanation using equations)
The steady state of an economy is a stage in which the economy's growth rate is constant. At steady state, an investment is equal to depreciation. All of investment is being used just to repair and replace the existing capital stock
b.What is the main implication of the steady state in terms of growth of output per worker? (1 mark )
c.Illustrate the transition of an economy to steady state using a diagram (Tip: think of what would happen with capital per worker and output per worker if the economy was to the left or to the right of the steady state). (1 mark for correct graph and 1 mark for the explanation of the graph)
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