Question 15 (1 point) The most unsettling conclusion of the Solow model is the c
ID: 1146999 • Letter: Q
Question
Question 15 (1 point) The most unsettling conclusion of the Solow model is the conclusion that once the economy reaches its long-run potential level of income, economic growth simply: 1) declines, leading to what is referred to as a "failed state." 2) matches population growth, with no chance for sustained increases in average 3) causes a rapid inflation, leading to an erosion of gains made during the growth O 4) subsides, as socialism becomes an acceptable form of political economy for the income. period people.Explanation / Answer
Answer.) 2.) Matches population growth, with no chance for sustained increases in average income.
Basic model
Y/L = F(K/L, 1)
Where Y = total output
L = number of workers
K = capital stock
Y/L = output per worker and therefore income per worker
K/L = physical capital per worker.
The equation tells us that capital per worker is fundamental to the growth process and consequently the core policy implication from this model is to focus on generating more physical capital in the economy.