In the Solow Model with Constant Technological Knowledge (A), If

question 124

Multiple Choice

In the Solow model with constant technological knowledge (A) , if the economy is initially below its steady-state capital stock:

• A) catching-up growth will occur.
• B) cutting-edge growth will occur.
• C) there will be no growth.
• D) both catching-up and cutting-edge growth occurs.

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Definitions:

Fixed Costs

Expenses that do not change in total regardless of the level of production or sales activity, such as rent, salaries, and insurance.

Marginal Costs

The additional cost incurred by producing one extra unit of a product or service.

Economic Profits

Profits exceeding the opportunity costs of a next best alternative, measuring the extent to which a firm has generated excess returns over its costs, including the cost of capital.

Cost of Capital

The rate of return a company must earn on its investments to maintain its market value and attract funds.