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E3
According to the Solow model, what can be said about convergence of production per capita between different
countries? With the help of a diagram, explain if the production per capita of a country could still grow once
its steady state has been reached.
Step by step
Solved in 3 steps with 2 images
- (a) Two countries, Country A and Country B, are described by the Solow growth model. Bothcountries are identical, except that the rate of labor-augmenting technological progress ishigher in A than in B.i. In which country is the steady-state growth rate of output per effective worker higher?ii. Does the Solow growth model predict that the two economies will converge to the samesteady state? (b) Based on the Solow growth model with population growth and labor-augmenting technologicalprogress, explain how each of the following policies would affect the steady-state level andsteady-state growth rate of total output per person:i. an increase in the government’s budget deficit ii. grants to support research and development (c) Consider a Solow model where the production function no longer exhibits diminishing returnsto capital accumulation. Assume the production function is now Y = AK. What happens tothe growth rate of per capita GDP over time?“The Solow model shows that the higher the rate of population growth, the higher the steady-state levels of capital per worker and output per worker because more population meansmore worker so more output”. Do you agree with the statement?Graphically explain,In the Solow economic model, id like to know the relationship between the rate of population growth and the steady state level of income. I know that when the rate of population growth grow, then the breakeven investment line goes up, which decreses investment and capital per worker, but what does it do to the income level and the steady state rate of growth?
- In Solow model, we assumed that population growth rate is irrelevant to saving rate and technological progress. In this question, we will relax this assumption. Assume that population growth would reduce technological progress, what would happen to the steady state level of capital per capita? What if otherwise population growth increases technological progress? Explain mathematically and graphically.In the Solow growth model:1. What is the equilibrium effect of an increase in the population growth rate?2. What is the equilibrium effect of an increase in TFP?3. Which of these shocks is better able to generate sustained growth: a decrease in thepopulation growth rate, or an increase in TFP? How does this compare with theresults of the Malthusian model of economic growth?why is this true or false Consider countries A and B, with A having a higher population growth rate than B. According to the Solow–Swan model, output per person in A and output per person in B are the same in steady state.
- In the Solow growth model, what two things (lines/equations) are equalin steady state? Explain all of the variables and the logic of why this is asteady stateConsider a numerical example using the Solow Growth Model, for 2 countries.Country A: d=0.1, s=0.3, n=0.01, z=1, F(K,L)=K0.3N0.7 Country B: d=0.1, s=0.2, n=0.01, z=1.5, F(K,L)=K0.4N0.6Which Country has a higher level of GDP per capita in steady state? Country A Country B Not enough informationSuppose policymakers want to increase the growth rate of an economy and they increased savings rate. Considering the Solow model with technology, please show graphically the short and long term effects of this policy change on the growth and level of income per capita? Thanks.
- Solve both 1.In the Solow growth model with population growth of 5 per cent and a labour augmenting technological progress of 3 per cent, the economy’s: Select one: a. number of workers grow at 5 per cent while the number of effective workers grow at 2 per cent. b. number of workers grow at 3 per cent while the number of effective workers grow at 8 per cent. c. number of workers grow at 5 per cent while the number of effective workers grow at 8 per cent. d. number of workers grow at 5 per cent while the number of effective workers grow at 3 per cent. 2. Schumpeter's “creative destruction” is an explanation of economic progress resulting from: Select one: a. new product producers driving incumbent producers out of business. b. breaking down barriers to trade and development. c. using up scarce natural resources to create new products. d. creating new methods to destroy the environment.a) What do steady state and conditional convergence mean? b) Why do these happen according to the Solow Growth Model? c) How can a country that is already at a steady state continue to grow?when a country adds capital what is it doing to its productivity and GDP? Which variable in the Solow Model equation is it changing?
