Help needed please answer all questions. Thanks 26) Changes in the capital stock

Question

Help needed please answer all questions. Thanks

26) Changes in the capital stock are caused by changes in A) the quantity of labor. B) depreciation and investment. C) depreciation and entrepreneurship. D) depreciation and the quantity of labor. 27) In the Solow model, the faster growth of output that results from an increase in the saving rate is temporary, because A) of diminishing marginal product of capital B) with a larger stock of capital, consumption is encouraged more than investment C) the rising capital stock depreciates at a faster rate D) the economy settles into a steady state in which saving no longer rises

Explanation / Answer

26) B) depreciation and investment.

At a given point of time, capital stock is an important factor that determines output of economy but capital stock can change over time and those changes can lead to economic growth. In particular, 2 forces influences capital stock i.e. investment and depreciation.

27) D) the economy settes into a steady state in which saving no longer rises.

Solow model show that saving rate is an important factor that determine steady state capital stock. If saving rate is high then economy will have large capital stock and high level of output in the steady state. On the other hand, when saving rate is low then economy will have low level of output and small capital stock in a steady state. According to this model, higher saving leads to faster growth but only temporary, an increase in saving rate increases the growth only until economy reaches new steady state.

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