1. What role does depreciation play in the Solow growth model? How would a decrease in the rate of depreciation (?) change the steady state level of capital and output? Illustrate using a diagram of the Solow Equilibrium. How would the model’s conclusions change if all capital lasted forever and remained productive forever?
2. The Solow growth model takes the rate of technology growth as given, determined somewhere outside the model. Do you believe that technology “just happens” or is technological change a function of specific causes? What might cause the rate of technological change to increase or decrease? Are there government policies that can affect the rate of technology growth?