Question

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.

Answer 1

ANSWER:-

Consider the 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 claimandExplaining, using the Solow model.

• There will be a fundamental presumption that economy begins with stedy and stable degree of state capital that is beneath the Golden standard level.
• At the point when bigger portion of national salary ( output ) is contributed for the investment, little piece of national output accessible for utilization purpose.When there is decline in utilization and increment in investment ,increasingly supply of capital will be accessible for creation and there would be a development of all output or gainful per work additionally increments simaltaneously. At the point when extra outputs are created by the workers,total efficiency will likewise rise.
• At the point when we consider about the new stedy State output will develop at ( n ) rate at of development of outputper specialist at zero rate.It plainly expresses that the new state wise efficiency development is autonomous of the investment.
• At the point when we considered the economy underneath the Golden principle level so there is increment in the higher investment rate.Therefore expectation for everyday comforts of the individuals is higher due to increment in occupation and employment opportunities.
• .Therefore the expansion investment rate builds profitability just in the short run and not for since a long time ago run.