What is the prediction of the Solow growth model on the growth rate of real GDP per capita?(Limited to 100 words.)
Question
Solution
The Solow growth model predicts that the growth rate of real GDP per capita is influenced primarily by technological progress and capital accumulation. In the long run, economies will converge to a steady-state level of output where capital per worker remains constant, and thus, the growth rate of real GDP per capita will primarily depend on the rate of technological advancements. While capital accumulation can boost growth temporarily, diminishing returns imply that without ongoing innovation, increases in capital will lead to a lower per capita growth rate over time. Therefore, sustainable long-term growth relies significantly on technological progress.
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