How will technological advancement impact the steady state level of capital in the Solow growth model?
A) It will have no effect.
B) It will increase the steady state level of capital.
C) It will decrease the steady state level of capital.
D) It will increase the steady state level of capital in the short run but not the long run.
E) It will increase the steady state level of capital in the long run but decrease the steady state level in the short run.

Question

Quizplus · Accepted Answer

Technological advancement increases labor productivity, which in turn increases output and leads to an increase in the steady state level of capital in the Solow growth model. This is because the steady state level of capital is determined by the balance between depreciation of existing capital and investment in new capital, and with technological advancement, output per unit of capital increases, allowing for greater investment in new capital.

How Will Technological Advancement Impact the Steady State Level of Capital