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The Solow Model 1 – Introduction - Practice Questions

1. According to the Solow Model, _____________________ is a function of capital. *

labor

output

technology

2. In the Solow Model, capital is subject to _____________________. So as you add additional units of capital to other fixed resources, there comes a point where more capital does not increase output as much as it did before. *

increasing returns

the endowment effect

diminishing returns

3. The Solow Model implies that countries with small initial capital stocks should grow rapidly. This implies that: *

poorer countries should eventually “catch-up” to richer countries (conditional convergence)

poorer countries are bound to experience explosive growth which will propel their economic output far beyond that of rich countries

the growth rates between rich and poor countries is bound to diverge

4. In the Solow Model, when capital is depreciating faster than it is being accumulated we may conclude that the capital stock is _________________________. *

rising

falling

remaining the same

5. In the Solow Model, the point where investment is equal to depreciation is known as the ______________. *

steady state

bliss point

growth acceleration point

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The Solow Model 1 – Introduction - Practice Questions