Which of the following best describes the basic assumption of the constant-growth model in economics?

• A. The population remains unchanged while output increases.
• B. Government spending is the only driver of economic growth.
• C. The economy's output grows at a constant percentage rate over time.
• D. Prices and wages are fixed and do not change over time.

Answer: (C)

Verified step by step guidance

1. Understand that the constant-growth model in economics assumes a steady and predictable growth pattern over time.
2. Recognize that this model typically focuses on the growth rate of the economy's output, rather than changes in population or government spending alone.
3. Recall that the key feature of the constant-growth model is that the economy's output increases at a constant percentage rate, meaning growth is exponential rather than linear.
4. Eliminate options that suggest fixed prices and wages or that attribute growth solely to government spending, as these do not align with the constant-growth assumption.
5. Conclude that the best description is that the economy's output grows at a constant percentage rate over time, reflecting the core idea of the constant-growth model.