Solow growth model 20
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Ideas: Work It Out 3 of 4
The diagram depicts the Solow growth model. We can
use this model to determine how the steady-state level of
capital stock and output respond to dillerent changes.
Consider these expressions for output (Y). investment (I).
and depreciation (D):
Y = K
I = 0.3K
D = 0.02 K
that
VI.
What are the new steady-state levels of capital stock (K$5)
and output (YS) if we increase the depreciation rate from
0.02 to 0.03?
to
sou
kss

Determine if the following statements are true or false. an increase in government spending can crowd out private investment. an improvement in the budget balance increases the demand for financial capital. an increase in private consumption may crowd out private investment. lower interest rates can lead to private investment being crowded out. a trade balance in sur+ increases the supply of financial capital. if private savings is equal to private investment, then there is neither a budget sur+ nor a budget deficit.