AK Model

Question 1

Which is the main characteristic of the AK model?

Answer 1

The production function is linear in the stock of capital in the economy, completely ignoring the existence of labor

Question 2

Which are some characteristics of the AK function?

Answer 2

• Constant returns to scale
• Positive, but not decreasing, marginal returns to capital
• Does not satisfy the Inada conditions

Question 3

How does consumption behave in the AK model?

Answer 3

Consumption is proportional to income per capita, which means that all per capita variables will grow at the same rate

Question 4

How does the growth rate of capital per worker behave in the AK model?

Answer 4

It is constant

Question 5

Which are some of the differences between the AK model and the Solow model?

Answer 5

• The growth rate of income per capita can be positive without the assumption that some variable grows continuously and exogenously
• The growth rate is determined by visible factors
• An increase in the savings rate will lead to a permanent increase in the growth rate
• The economy does not have a transition to the steady state given that it always grows at a constant rate
• There is no relationship between the growth rate and GDP levels
• Effects of a temporal recession will be absolutely permanent

Question 6

What does the AK model state about the convergence of the economies?

Answer 6

It does not predict any convergence, neither absolute, nor conditional

Question 7

What does the AK model establish about growth rates for different countries?

Answer 7

Growth rates will be constant and the same for all countries