Which of the following are the assumptions of Solow’s growth model? i. Saving is more than Investment…
Statements ii and iii are assumptions of the Solow model. Its aggregate production function uses capital and labour, shows constant returns to scale, and lets the two…
Choose your answer
Which of the following are the assumptions of Solow’s growth model?
i. Saving is more than Investment
ii. Production function exhibits constant returns to scale
iii. Labour and capital are substitutable for each other
iv. Output is a function of capital only
Answer and explanation
Correct answer C
Statements ii and iii are assumptions of the Solow model. Its aggregate production function uses capital and labour, shows constant returns to scale, and lets the two factors be substituted for each other, unlike the fixed proportions of the Harrod–Domar model. Saving equals investment in the model, so saving exceeding investment is not assumed, and output depends on labour as well as capital.
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Telangana SET (TG SET)