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Intermediate Macroeconomics: The Solow growth model · Production and Capital Accumulation

How the Solow model links output to capital per worker, and how investment, depreciation and population growth drive capital accumulation.

Intermediate Macroeconomics · 27 questions

Try 3 questions

1. Who developed the neoclassical growth model in 1956 that bears his name?

  1. Robert Solow
  2. Milton Friedman
  3. John Maynard Keynes
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Answer: Robert Solow

Robert Solow published the model in 1956 (Trevor Swan developed a similar one the same year) and later received the Nobel Prize for his work on growth.

2. The Solow model assumes constant returns to scale in Y = F(K, L). What does that mean?

  1. Doubling capital and labor doubles output
  2. Doubling capital alone doubles output
  3. Doubling both inputs more than doubles output
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Answer: Doubling capital and labor doubles output

Constant returns to scale concerns scaling all inputs together: twice the machines and twice the workers make twice the output.

3. Why can the Solow model be written per worker, as y = f(k)?

  1. Population is assumed never to change
  2. All workers are assumed to earn equal wages
  3. Constant returns make output per worker depend on k
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Answer: Constant returns make output per worker depend on k

With constant returns, dividing F(K, L) by L gives F(K/L, 1), so output per worker depends only on capital per worker, whatever the size of the economy.

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