Q.2An economy described by the Solow growth model has the following production function:y = Vk.a.Solve for the steady-state value of y as a function of s, n, g, and db. 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?

We are going to solve for steady state of capital per worker to answer this question.

Answered: Q.2An economy described by the Solow…

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 5P

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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).
Use a diagram to represent the Solow Growth model using the aggregate production function and the relationship between the physical capital stock and aggregate saving. i) Which point in the diagram represents the steady-state equilibrium? Why? ii) Use the diagram to show the impact of an increase in human capital on GDP.
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).
1. Carefully draw a graph depicting steady state conditions within the Solow Growth Model framework. Carefully explain, making reference to depreciation rates and savings rates, how the steady state level of capital is determined. Now, demonstrate how the economy can grow from this point forward (in separate analyses) assuming: (a.) widespread improvements in production technology, and (b.) increases in savings rates. For each analysis show and carefully describe how the new steady state level of capital is attained.
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*). In brief define what it means by a steady-state level.
1. Draw a well-labeled graph that illustrates the steady-state of the Solow model with population growth. Use the graph to find what happens to steady-state capital per worker and income per worker in response to each of the following exogenous changes.a. A change in consumer preferences increases the saving rate.b. A change in weather patterns increases the depreciation rate.c. Better birth-control methods reduce the rate of population growth.
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?
Two important economic growth drivers are a country’s rate of savings and its rate of technological progress. Using the Solow framework, explain the effects of (1) an increase in the saving rate and (2) an increase in technology on output per person during the transition and in the very long term. Use a diagram.
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?
In the Solow growth model, what happens in an economy when technological progress results in the rate of depreciation falling? Use an economy where there are both workers and effective workers to illustrate the effects of this change in the rate of depreciation and show the steady state effects. USE GRAPHS.
Problem 1: How can policymakers influence a nation’s saving rate? Problem 2: Draw a well-labeled graph that illustrates the steady state of the Solow model with population growth. Use the graph to find what happens to steady-state capital per worker and income per worker in response to each of the following exogenous changes. a. A change in consumer preferences increases the saving rate. b. A change in weather patterns increases the depreciation rate. c. Better birth-control methods reduce the rate of population growth. d. A one-time, permanent improvement in technology increases the amount of output that can be produced from any given amount of capital and labor.
when a country adds capital what is it doing to its productivity and GDP? Which variable in the Solow Model equation is it changing?

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