In the Solow model, if capital is in the steady state, output:
A) will continue to grow.
B) is also in the steady state.
C) will continue to grow, but its rate of growth will slow down.
D) will decline, but its rate of growth will be positive.
E) will begin to contract.

Question

Quizplus · Accepted Answer

In the steady state, output is also in the steady state. This means that the economy has reached a level of output that is sustainable in the long run, and will not continue to grow or decline indefinitely. Instead, output will remain stable at this level, as long as there are no changes to the underlying variables of the Solow model (such as population growth, technology, or savings rates).

In the Solow Model, If Capital Is in the Steady