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Questions › DSE › DSE 2021 › Q40
4 marks, −1Economics of Growth and Development › Harrod–Domar and Solow growth models › Comparative statics in the Solow modelHardabout 3 min

DSE 2021 Question 40: Harrod–Domar and Solow growth models

There are two countries XXX and YYY with the same production function. Both start with the same levels of capital, labour and technology, and the capital-labour ratio is lower than the steady-state level. XXX has a saving rate of 30 percent and YYY has a saving rate of 25 percent. In both countries the population growth rate is 3 percent per year, depreciation is 5 percent per year, and the rate of technical progress is 3 percent per year. According to the Solow growth model, which of the following statements is correct?

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There are two countries X and Y with the same production function. Both start with the same levels of capital, labour and technology, and the capital-labour ratio is lower than the steady-state level. X has a saving rate of 30 percent and Y has a saving rate of 25 percent. In both countries the population growth rate is 3 percent per year, depreciation is 5 percent per year, and the rate of technical progress is 3 percent per year. According to the Solow growth model, which of the following statements is correct? (A) Y will exhibit a higher growth rate of output per person in the short run and output will grow at 6% per year in both countries in the steady state (B) X will exhibit a higher growth rate of output per person in the short run and output will grow at 6% per year in both countries in the steady state (C) Both X and Y will exhibit the same growth rate of output per person in the short run and output will grow at 8% per year in both countries in the steady state (D) X will exhibit a higher growth rate of output per person in the short run and output will grow at 8% per year in both countries in the steady state

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

What this question tests

This question is on Comparative statics in the Solow model, part of Harrod–Domar and Solow growth models in Economics of Growth and Development.

How steady states change with population growth, technology and depreciation.

TestStop has 8 past-paper questions on this subtopic; the nearest in year are below.

  • IIT JAM 2021 · Q12In a Solow model without technological progress, Yₜ = Kₜ^α Nₜ^(1-α), population grows at g_N > 0, saving…
Practise Harrod–Domar and Solow growth modelsMore on Comparative statics in the Solow model

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Question from the DSE 2021 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.