Assume that the Indonesian economy can be reflected in the production function: Y =F(K,L) = K 0$L 05, Assume that the depreciation rate is 8%, the saving rate is 20%, and thepopulation growth is 2%. There is no technological progress.a. Using the Solow growth model, calculate the steady state value of: (1) capital per labor,(ii) income per labor, (ii) consumption per labor.o. Calculate the golden rule level of capital per labor.

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Answered: Assume that the Indonesian economy can…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter20: Economic Growth In The Global Economy

Section: Chapter Questions

Problem 1P

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Assume that an economy is described by the Solow model in the long run. The rate of population growth in this economy is n technological growth is g rates of total GDP, GDP per worker, and GDP per effective worker? 0.01 and the rate of 0.02. What are the long-run (steady state) growth rates of total GDP, GDP per worker, and GDP per effective worker?
This question is about the Solow model. For 2 countries, 1 and 2 which has the same rate of population growth and depreciation and the same saving rate, and are in initial steady state, their capital have equal importance for production for both countries with the same value of α = 1/2 a. In the initial steady state, country 1 has 2 times the output per capita to country 2 because of its greater productivity A. Please use the steady-state equation to find the ratio of the 2 countries’ ratio of productivity and explain it. b. Find the 2 countries’ ratio of capital per capita and explain it. c. Please explain in detail if the capital owners in country 1 are motivated to move their capital from country 1 which is capital abundant, to country 2 which is more capital scarce? Hint: the 2 countries’ payment per unit of capital d. Does workers in country 2 motivated to immigrate to country 1? Please explain from the perspective of the 2 countries’ wages.
Countries A and B have the same rates of invest- ment, population growth, and depreciation. They also have the same levels of income per capita. Country A has a higher rate of growth than does Country B. According to the Solow model, which country has higher investment in human capital? Explain your answer.
3. An economy described by the Augmented Solow growth model has the following production function with populationgrowth (1+n) and technological growth (1+z):y =p(k)(a) Solve for the steady-state values of capital per capita and output as a function of s, n, z, and δ.(b) A developed country has a saving rate of 28 percent and a population growth rate of 1 percent per year. A lessdeveloped country has a saving rate of 10 percent and a population growth rate of 4 percent per year. In bothcountries, g = 0.02 and d = 0.04. Find the steady-state value of y for each country.(c) What policies might the less developed country pursue to raise its level of income? Graphically demonstrate howyour advised policy would increase income per capita (y).
In the Solow growth model, suppose that the per-worker production function is given by y=zk2/3 . The saving rate is s, depreciation rate is d, and population growth rate is n. Calculate the per capita capital (k) and output per worker (y) in the steady state.
Assume that the economy’s production function is Cobb Douglas so per-capita output is ? = k^α, where k is per-capita capital. Using the Solow growth model, explain the impact of the loss of capital on the growth rate of per-capita output in the years following the disaster.
Assume that an economy is described by the Solow model in the long run. The rate of population growth in this economy isn=0.01 and the rate of technological growth is g= 0.02. What are the long-run (steady state) growth rates of total GDP, GDP per worker, and GDP per effective worker?
According to the Solow–Swan model, if the saving rate rises, then: a. steady state per capita income falls b. per capita income falls c. steady state per capita income rises d. steady state per capita income is unaffected
Suppose that the depreciation rate increases. In the Solow growth model, determine the effects of this on the quantity of capital per worker and on output per worker in the steady state. Explain the economic intuition behind your results.
Consider the Solow growth model with neither technological nor population change. The parameters of the model are given by s=0.3 (savings rate) and δ=0.08(depreciation rate). Let k denote capital per worker; y output per worker; Solve for output per worker (y*) in the steady state. Show your derivations.
Suppose a country has a capital-output ratio equal to 10, a savings rate equal to 20% of GDP, capital that lasts on average 100 years and population growth of 1% per year. If we assume the country is at its steady state and production is given by the Solow model with labor-augmenting technological change, so Y = K^a(EL)^(1 – a), then the growth rate of technology as measured by the growth rate of efficiency workers is 0% 1% 3% 2% 4%
QESTION 6 for which of the following does the Solow model NOT provide adequate explanation? a. What causes long-term economic growth b. The case of productivity differences across countriesc. Why saving rates differ across countries d. All of these answers are correct e. Why population growth rates differ across countries Using the Solow model, if, in time, t=0, the initial capital stock is 100, investment is 25, the population is normalized to 1, and e 10 percent, then capital accumulation from period t=0 to period t=1 is: a. 15 b. 115 c. 35 d. D. 0 e. -15

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