Answer-The AK endogenous growth model (Y = AK) avoids the diminishing returns problem of the Solow model by...

AK model When K is interpreted broadly including human capital or when learning-by-doing externalities are present Arrow, Romer, the social MPK does not diminish it remains constant at A. This generates perpetual growth g sA . There is no steady state and no convergence unlike Solow. Option A is closer to Lucas 1988 but incomplete. Option B describes Romer 1990 with expanding product varieties a different endogenous growth model. Note Assertion-reason trap from exam Q34 in PDF All endogenous growth models attribute growth to human capitalRD FALSE. The AK model does not require RD it relies on broad capital or externalities. Different endogenous models have different engines of growth.

Question

The AK endogenous growth model (Y = A

K avoids the diminishing returns problem of the Solow model by:

A Assuming human capital accumulation offsets physical capital diminishing returns through externalities, so social return to capital is constant

B Incorporating R&D expenditure that generates new varieties of capital goods, preventing marginal product from falling

C Interpreting K broadly to include both physical and human capital, or incorporating capital externalities (learning-by-doing) such that the social MPK remains constant (= A), generating perpetual growth without convergence

D Assuming a fixed saving rate that exactly offsets depreciation, maintaining a constant capital-output ratio indefinitely

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