Consider the Solow growth model without population growth or technological change. The parameters of the model are given by s = 0.2 (savings rate) and δ = 0.05 (depreciation rate). Let k denote capital per worker; y output per worker; c consumption per worker; i investment per worker. a. Rewrite production function per-worker terms. b. Find the steady-state level of the capital stock, kss

Consider the Solow growth model without population growth or technological change. The parameters of the model are given by s = 0.2 (savings rate) and δ = 0.05 (depreciation rate). Let k denote capital per worker; y output per worker; c consumption per worker; i investment per worker. a. Rewrite production function per-worker terms. b. Find the steady-state level of the capital stock, kss

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 3P

See similar textbooks

Similar questions

Consider our graph of the basic Solow growth model. On the graph above: y represents real output (or income) per worker; y=F(k) is the production function; k is the capital stock per worker; s is the savings rate; δ is the rate of depreciation of capital; ‘i’ represents business investment (purchases of capital) per worker); ‘LF’ stands for Loanable Funds. (For purposed of intuition, think of capital as ‘machines.’) If we started out with a capital (per worker) stock lower than the steady-state stock ( , above), we would expect to see which of the following happen over time? Group of answer choices A) Positive growth rates while the capital stock increases. B) Negative growth rates while the capital stock increases. C) Negative growth rates while the capital stock decreases. D) Positive growth rates while the capital stock stays less than the steady-state level. E) Positive growth rates while the capital stock decreases.
According to the Solow Growth Model, each of the following leads to higher level of output and capital in the long run: an increase in the saving rate, an increase in the depreciation rate, and an in increase productivity. A.) True B.) False
Assume there is no population and technology grows at a constant rate of g. Graphically illustrate and explain the effects of a reduction in the saving rate on the Solow-Swan growth model and increase in technological growth. In your graph, clearly label all curves and equilibria. Explain what will happen to each of the following over time: capital per effective worker, output per effective worker, and consumption per effective worker.
Hello, please help me to solve these questions.Consider the Solow growth model with technological progress at the rate g, population growth at the rate n, and capital depreciation rate at the rate δ. The savings rate is denoted by s and the production function is given by:Y = Kα (AL)1-α , 0 < α < 1.Y is aggregate output, K is aggregate capital, L is aggregate labour, A is technology and AL is effective labour. (a) Let ݇k = K/AL which denotes capital per unit of effective labour. Obtain the production function in terms of capital per unit of effective labour. Explain the properties this production function satisfies. (b) Derive the key equation that governs the evolution of capital per unit of effective labour in this Solow model. Provide the steady state value of capital and output in per unit of effective labour terms. What are the growth rates of capital per unit of labour and output per unit of labour in the steady state? (c) Analyse the effect of a decrease in the…
Within the Solow Growth Model framework, explain why capital accumulation cannot be the main driver of growth in the long-run for a developed country (i.e. intuitively explain why an economy converges to a steady state equilibrium).
The validity and ability of the Solow Growth Model in explaining the long-term growth of a country has been tested empirically.(a) In the Solow Growth Model we are introduced to the concept of the Golden Rule; optimum level of saving and capital formation to support growth. Is this Golden Rule concept proven empirically?(b) From what we have learned from the Solow Growth Model, describe some policies that can improve a country's economic growth rate.
1 According to the Solow Model, which of the following statements is correct? 1. An increase in the depreciation rate of capital reduces the long-run growth rate of per-capita output 2. An earthquake that destroys 20 percent of the country capital reduces the long-run level of output 3. An increase in the rate of population growth reduces the long-run growth rate of per-capita output 4. A permanent increase in the Total Factor productivity increases on the long-run level of per-capita output
Suppose some of the country's capital is suddenly destroyed. If the depreciation rate, savings rate, and production function remain unchanged, then the real growth rate will _____ in the short run and the steady-state level of capital will _____ A.increase, decrease B.decrease, decrease C.increase, stay the same D. decrease, stay the same
Which of the following is an incorrect statement about the variable ‘s’ in the Solow Growth Model? a.s is the fraction of income that is saved b.s is an exogenous factor c.s is referred to as saving per worker d.s determines how income is allocated between consumption and investment
Consider the following Solow growth model in which households save a constant fraction of their income. Let N be the population (also the labor force) in the current period. Assume that the population follows N′ = (1+n)N where N′ is the population in the future period, and n is the net population growth rate. Assume that the output is produced according to the production function Y = zF(K, N), where z is the total factor productivity, K is capital stock, and F(K, N) exhibits constant returns to scale. Capital depreciates at the rate d where 0 < d < 1. The capital stock changes over time according to K′ = (1 − d)K + I where I is the investment level. (a) Derive the equation that determines the future capital-per-worker in competitive equilibrium. Here is some additional information for parts (5b), (5c), and (5d). Suppose that the economy is initially in steady state, and experiences a natural disaster (e.g. the recent quake and tsunami in Japan in 2011) that destroys some of the…
Based on article "Technology and economic growth: From Robert Solow to Paul Romer" by Rui Zhao, Solow mentioned technology (At) and capital per unit of effective labor (Kt) have a significant influence on a country's ability to “catch-up” or “converge” to a steady-state level (K*). Using the central equation of the Solow model, discuss the influence of At and Kt on country's ability to grow and move to a steady-state level (K*).
The amount of education the typical person receives varies substantially among countries. Suppose you were to compare a country with a highly educated labor force and a country with a less educated labor force.Assume that education affects only the level of the efficiency of labor. Also assume that the countries are otherwise the same: they have the same saving rate, the same depreciation rate, the same population growth rate, and the same rate of technological progress. Both countries are described by the Solow model and are in their steady states. What would you predict for the following variables?a. The rate of growth of total income.b. The level of income per worker.c. The real rental price of capital.