In the Solow model with population growth and technological progress, an economy's output per worker grows at 3 percent and the total output grows at 5 percent. Therefore, we can conclude that the technology is growing by and the population is growing by O a. 2 percent; 2 percent O b. 3 percent; 2 percent O c. 2 percent; 3 percent O d. 3 percent; 3 percent

In the Solow model with population growth and technological progress, an economy's output per worker grows at 3 percent and the total output grows at 5 percent. Therefore, we can conclude that the technology is growing by and the population is growing by O a. 2 percent; 2 percent O b. 3 percent; 2 percent O c. 2 percent; 3 percent O d. 3 percent; 3 percent

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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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?
Q1) Consider a Solow economy that is on its balanced growth path. Assume for simplicity that there is no technological progress. Now suppose that the rate of population growth falls.(a) What happens to the balanced-growth-path values of capital per worker, output per worker, and consumption per worker? Sketch the paths of these variables as the economy moves to its new balanced growth path.(b) Describe the effect of the fall in population growth on the path of output (that is, total output, not output per worker).
We presented two versions of the Solow growth model. (1) In the simple version, there is no technological progress. Show in this simple version that at the steady state output per worker (GDP per worker) depends positively on the saving rate, and negatively on the population growth rate. What’s the growth rate of GDP at the steady state? What’s the growth rate of GDP per worker at the steady state? (2) In the version of the model with technological progress, what’s the growth rate of GDP at the steady state? What’s the growth rate of capital per worker at the steady state? What’s the growth rate of GDP per worker at the steady state? Show your steps
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.
(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?
which statement \s are true. use graphs to exlain a. In the Solow growth model, the saving rate is a crucial determinant of the economy's long-run growth rate of output per worker. b. In the endogenous growth model , the representative firm sets the wage so that the demand and supply of efficiency units of labour are equal. c. In the endogenous growth model , there is no steady state of the economy as human capital will always continue to grow forever. d. The assumption of Constant Returns to Scale technology implies that the marginal product of factor imput is always decreasing.
5. Use the simple Solow model, with no population growth. The formula for steady-state consumption per worker (c*) as a function of output per worker and investment per worker is: c * = f(k*) - δk* c * = f(k*) + δk * c * = f(k*) ÷ nk* c * = k* - f(k)*
E3 According to the Solow model, what can be said about convergence of production per capita between differentcountries? With the help of a diagram, explain if the production per capita of a country could still grow onceits steady state has been reached.
Answers to all 4 parts Suppose people can consume the income they earn or save and invest it at rate r ?.A. If we tax wealth at a rate greater than r ?, how are people likely to adjust their rate ofsavings?B. Use the Solow model to comment on how a wealth tax will likely affect the growth rate ofthe capital stock. How will this policy affect the growth rate of output per worker? How willthis policy affect the wage rate for workers?C. To what extent is this wealth tax likely to reduce the influence of the wealthy in politics?D. In the Peterson Institute discussion, Greg Mankiw argues that accumulating wealth creates apecuniary externality. What does Mankiw mean? How would you expect a wealth subsidy toaffect the real wage for workers?
4 Consider the context of the Solow model with technical progress in an excess saving scenario, that is,the savings rate is higher than the golden rule savings rate. Imagine that the economy started is in steady state, but at time t0 the saving rate increases suddenly. Elaborate graphs that show the evolution over time of the variables mentioned in the followingparagraphs as a result of the previous event .a) Growth rate of capital per effective workerb) Growth rate of capital per workerc) Capital growth rated) Natural logarithm of capital per effective workere) Natural logarithm of capital per workerf) Natural logarithm of capital
2b. “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 means more worker so more output”. Do you agree with the statement? Graphically explain
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.