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Questions › DSE › DSE 2020 › Q11
4 marks, −1Economics of Growth and Development › Harrod–Domar and Solow growth models › Transitional dynamics, stability and convergenceModerateabout 3 min

DSE 2020 Question 11: Harrod–Domar and Solow growth models

Consider the Solow growth model with a given savings ratio, constant population growth, zero capital depreciation and no technical progress. Let k∗k^*k∗ be the steady-state capital-labour ratio. The economy has not yet reached the steady state: k1k_1k1​ at time t1t_1t1​ and k2k_2k2​ at time t2t_2t2​, with t1<t2t_1<t_2t1​<t2​ and k1<k2<k∗k_1<k_2<k^*k1​<k2​<k∗. If g1,g2g_1,g_2g1​,g2​ are the growth rates of per-capita income at t1,t2t_1,t_2t1​,t2​, then

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Consider the Solow growth model with a given savings ratio, constant population growth, zero capital depreciation and no technical progress. Let k* be the steady-state capital-labour ratio. The economy has not yet reached the steady state: k₁ at time t₁ and k₂ at time t₂, with t₁<t₂ and k₁<k₂<k*. If g₁,g₂ are the growth rates of per-capita income at t₁,t₂, then (A) g₁<g₂ (B) g₁>g₂ (C) g₁=g₂ (D) the relationship between g₁ and g₂ is ambiguous

Also written as: Consider the Solow growth model with a given savings ratio, constant population growth, zero capital depreciation and no technical progress. Let k* be the steady-state capital-labour ratio. The economy has not yet reached the steady state: k_1 at time t_1 and k_2 at time t_2, with t_1<t_2 and k_1<k_2<k*. If g_1,g_2 are the growth rates of per-capita income at t_1,t_2, then

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

What this question tests

This question is on Transitional dynamics, stability and convergence, part of Harrod–Domar and Solow growth models in Economics of Growth and Development.

How an economy moves to its steady state and whether poor countries catch up.

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Practise Harrod–Domar and Solow growth modelsMore on Transitional dynamics, stability and convergence

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