Which of the following is not the assumption of Solow’s model of long run growth ?
Solow's neoclassical model of long-run economic growth assumes a constant saving ratio , a linear homogeneous production function with constant returns to scale , and…
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Which of the following is not the assumption of Solow’s model of long run growth ?
Answer and explanation
Correct answer B
Solow's neoclassical model of long-run economic growth assumes a constant saving ratio , a linear homogeneous production function with constant returns to scale , and flexible wages and prices that adjust continuously to clear labour, capital, and output markets. Consequently, 'Prices and wages are constant' is NOT an assumption of Solow's model—rigid prices and wages characterize Keynesian/Harrod-Domar models rather than Solow's neoclassical growth model. ('Labour and output not growing at same rate') describes transitional dynamics outside the steady state (or growth with technological progress), making the clear non-assumption.
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UGC NET Economics