The difference between total factor productivity (TFP) in the Solow-Swan model and the stock of ideas in the Romer model is that

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The question asks about the difference between total factor productivity (TFP) in the Solow-Swan model and the stock of ideas in the Romer model.
Option a: 'TFP grows but ideas are fixed.' In the Solow-Swan model, TFP is exogenous and typically treated as a fixed, long-run productivity parameter unless you alter technology over time through a stochastic process; the standard Romer framework instead endogenizes ideas, not fixes them. This option misstates the classic Solow assumption and the Romer mechanism, so it is incorrect.
Option b: 'TFP is fixed but ideas can grow.' This captures the core contrast: in the Solow-Swan model, TFP (technology) is treated as an exogenous, fixed factor unless extended, while Romer’s model endogenizes and allows the stock of ideas (knowledge) to grow through investment in R&D and knowledge spillovers. This aligns with the standard teaching of the two models and is the correct interpretation of the difference.
Option c: 'TFP is nonrival but ideas are not.' In Romer-style models, ideas are typically nonrival (one person using an idea does not prevent another from using it), which is a feature of Romer, but this description would imply ideas are rival in some sense in the Solow model as well, which is not the standard comparison being asked. Additionally, this option confuses the rivalry property of ideas with TFP directly and does not clearly describe the primary difference in growth dynamics between the two models, so it is inaccurate as a direct contrast.
Option d: 'TFP is rival but ideas are not.' This statement reverses the more precise notion of ideas being nonrival in Romer-type models and does not correctly describe the Solow model, where TFP is treated as an exogenous, fixed factor and not a rival good. This mischaracterizes the nature of TFP and ideas, making it incorrect.
Option e: 'There is no difference.' This is false because the Solow-Swan model treats TFP as fixed (exogenous) while Romer endogenizes ideas and allows their stock to grow, leading to endogenous growth in the latter. Therefore, there is a meaningful difference between the two frameworks.

ECON2102-Macroeconomics 2 - T3/2025

The difference between total factor productivity (TFP) in the Solow-Swan model and the stock of ideas in the Romer model is that

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