Which of the following is a characteristic of the 'Balanced Growth' path in the Solow model?
A. There is no steady state
B. Only capital grows while output is constant
C. Per capita variables grow at different rates
D. Capital, output and effective labour all grow at the same rate
Answer: Option D
Solution (By JKSSB Mock Tests)
On the balanced-growth path of the Solow model, aggregate capital, output and effective labour grow at the exogenous rate of technological progress plus population growth, so that capital and output per effective worker are constant.
Explanation:
The impossible trinity states that it is impossible to have a fixed exchange rate, free capital mobility and an independent monetary policy simultaneously; only two of the three can be achieved.
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