Imagine an Economy with Production Function Y = F(K)= and 400

question 37

Multiple Choice

Imagine an economy with production function Y = F(K) = and 400 units of capital.If the fraction of output invested in new capital is  = 0.2,the depreciation rate is  = .05,and the economy starts with output of 20,what does the Solow model predict will happen to output in the long run?

• A) It will remain at 20.
• B) It will decline.
• C) It will increase.
• D) It will increase for a time and then return to 20.

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Definitions:

Inputs

Resources used in the production process, including labor, capital, and materials.

Related Goods

Goods that are connected in some way, often through being complements or substitutes, affecting each other's demand and supply.

Consumer Income

The total amount of income received by consumers, including wages, salaries, benefits, and income from investments, which can influence spending patterns.

Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity of that good that consumers are willing and able to purchase at various prices.