Skip to content
We use only essential cookies to keep you signed in and remember your preferences. See our Cookie Policy.
TestStop
MocksPracticeResourcesIndiaBlogPricing
Sign in
Questions › DSE › DSE 2013 › Q60
2 marksEconomics of Growth and Development › Harrod–Domar and Solow growth models › The Solow model and its steady stateHardabout 3 min

DSE 2013 Question 60: Harrod–Domar and Solow growth models

In an economy, aggregate output is produced from capital KKK and labour LLL via Yt=αKt+βLtY_t=\alpha K_t+\beta L_tYt​=αKt​+βLt​, with α,β>0\alpha,\beta>0α,β>0. Both factors are fully employed; each worker is paid a wage β\betaβ and each unit of capital a rental α\alphaα. A constant proportion sss of output is saved and invested each period, augmenting next period's capital (no depreciation). The labour force grows at a constant rate nnn.

Consider the same set of parameter values as above. An increase in the savings ratio:

Tap an option to check your answer.

Answer and worked solution

Checking your account…

Plain-text version

In an economy, aggregate output is produced from capital K and labour L via Yₜ=α Kₜ+β Lₜ, with α,β>0. Both factors are fully employed; each worker is paid a wage β and each unit of capital a rental α. A constant proportion s of output is saved and invested each period, augmenting next period's capital (no depreciation). The labour force grows at a constant rate n. Consider the same set of parameter values as above. An increase in the savings ratio: (A) unambiguously increases the steady state value of capital per worker (B) unambiguously decreases the steady state value of capital per worker (C) leaves the steady state value of capital per worker unchanged (D) has an ambiguous effect; a steady state may not exist if the savings ratio increases sufficiently

Also written as: In an economy, aggregate output is produced from capital K and labour L via Y_t=alpha K_t+beta L_t, with alpha,beta>0. Both factors are fully employed; each worker is paid a wage beta and each unit of capital a rental alpha. A constant proportion s of output is saved and invested each period, augmenting next period's capital (no depreciation). The labour force grows at a constant rate n. Consider the same set of parameter values as above. An increase in the savings ratio:

Harrod–Domar and Solow growth models has come up 113 times in 7 exams since 2006.

What this question tests

This question is on The Solow model and its steady state, part of Harrod–Domar and Solow growth models in Economics of Growth and Development.

Growth with substitutable factors: capital per worker settles where saving covers depreciation and dilution.

TestStop has 38 past-paper questions on this subtopic; the nearest in year are below.

  • IIT JAM 2022 · Q14An economy follows the Solow model with production function y = √k, where y is output per worker and k is…
Practise Harrod–Domar and Solow growth modelsMore on The Solow model and its steady state

Similar questions from other papers

  • CUET-PG 2026 · Q69Match the LIST-I with LIST-II. List I A. Harrod-Domer Model B. Solow Model C. Golden rule of capital stock D. Steady state. List II I. g=s/v II. MRK = ∂ III. k…
  • GATE 2026 · Q50Consider a Solow growth model with the production function Yₜ=Kₜ^α Nₜ^(1-α); 0<α<1; where, Yₜ is aggregate output at time t; Kₜ is aggregate capital stock at time t; Nₜ…
  • IIT JAM 2026 · Q57For a closed economy: Sₜ=aYₜ and Iₜ=g(Yₜ-Yₜ₋₁), where Sₜ, Yₜ and Iₜ are savings, income and investment in period t, and a and g are positive constants. For Y₀=100…
  • UGC-NET 2026 · Q3Which of the following assumption is NOT similar in Harrod and Domar Model?
  • CUET-PG 2025 · Q17Which of the following is not correct about the steady state equilibrium for the economy according to neoclassical growth theory?

Question from the DSE 2013 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.