When the capital-output ratio is at its steady state value, the total economy-wide capital stock is growing at the
A) sum of the growth rates of the labor force.
B) difference between the growth rates of the labor force and the efficiency of labor.
C) growth rate of the labor force multiplied by the growth of the efficiency of labor.
D) growth rate of the labor force divided by the growth rate of the efficiency of labor.

Question

Quizplus · Accepted Answer

In a steady state, the capital stock grows at the same rate as the labor force and the efficiency of labor, ensuring that the capital-output ratio remains constant. However, the correct interpretation of the steady state growth in this context is that the capital stock grows at the rate that matches the combined effects of labor force growth and improvements in labor efficiency, which is best approximated by the sum of these rates, not their multiplication, division, or difference. This is a simplification for the purpose of this question, as the actual dynamics can be more complex and depend on the specific model used (e.g., Solow growth model).

When the Capital-Output Ratio Is at Its Steady State Value