In the standard production model's production function, the productivity parameter enters the equation with an exponent of one, while in the Solow model's equation for the steady-state stock of capital 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 production function model.
C) the productivity measure is zero in the 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, the productivity parameter affects the steady-state stock of capital because it influences the level of output and savings, which in turn determine the accumulation of capital. This relationship implies that higher productivity leads to a higher steady-state level of capital, showing the dependency of the capital stock on productivity.

In the Standard Production Model's Production Function, the Productivity Parameter