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In: Economics

Consider the following statement: “Devoting a larger share of national output to investment will imply a...

Consider the following statement: “Devoting a larger share of national output to investment will imply a higher consumption per worker and a higher living standard.” Do you agree with this claim? Explain, using the Solow model.

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Expert Solution

Yes, I do agree to this claim. The Solow- Swan model, or in simple the Solow model is nothing but an economic model with a long run economic growth by leveraging neo-classical economics. To strike more relevance, I have attached some images which will explain how increase in capital investment efficiently translates to a higher rate of growth of national income. Also, Solow–Swan model assumes from the beginning that the labor-capital split of income remains constant since capital and labour remain constant in the longer run study state.

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Rahul Sunny answered 8 months ago
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