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Macroeconomics of Economic Growth Coursework 2007 By Ravi Waghela URN: 1455303 1. True The Solow growth model is a model that shows the effect of savings rate, depreciation and capital accumulation on economic growth. At the steady state savings equals the depreciation rate of capital. The main weakness of the simple Solow growth model is that at the steady state there is no sustained growth in per capita terms. When investment equals depreciation, the economy hits a steady state. k=sf(k) - (n+ ?)k where k =0 so therefore sf(k) = (n+ ?)k and growth in output per capita is Zero y/y = 0 Relaxing this assumption of diminishing returns would mean that f(k) would not be concave and in fact would be a straight line and therefore sf(k) would be a straight line. This would never cross (n+ ?)k and a steady state would never be achieved and that capital per capita will increase. Solow growth model does...

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