In the standard production model, the productivity parameter enters the equation with an exponent of one, while in the Solow model it is greater than one because:
A) the endogenous level of the capital stock itself depends on productivity
B) there is no productivity parameter in the standard production function model
C) the productivity measure is zero in the standard production function model
D) the productivity measure is negative in the Solow model
E) the exogenous level of the capital stock itself depends on productivity

Question

Quizplus · Accepted Answer

In the Solow model, productivity affects the capital accumulation process, making the capital stock endogenous and dependent on productivity, hence the exponent is greater than one.

In the Standard Production Model, the Productivity Parameter Enters the Equation