Income per person exceeds $25,000 in many countries but it is below $1,000 per person in many other countries. Based on the Solow growth model, suggest at least four possible explanations for this gap in living standards.
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- 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.Consider 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 informationDiscuss how extending the Solow model with human capital changes our understanding of the growth process in practice.
- . Using the Solow growth model suppose that there is a hurricane coming toward a city. Because it is fully anticipated a lot of the people can leave and come back safely, but a lot of physical capital (K) is destroyed (buildings cannot move). Show graphically what the Solow model predicts will happen to the steady state. Does the poverty trap model have any different predication? Compare this graphically.Evaluate the following statement. People do not save enough or invest enough in their education. What would be the arguments for and against government policies that encourage an increase in private savings and more investment in education? Using appropriate equations and graphs, consider the implications of both the Solow growth model and the endogenous growth model, but also their limitations, when addressing these questions.The Solow model without exogenous productivity growth predicts that rich countries with more capital will grow faster than poor countries with less capital, assuming other economic conditions are equal. Is this statement true or false? Explain.
- when a country adds capital what is it doing to its productivity and GDP? Which variable in the Solow Model equation is it changing?Suppose we started out at the steady state capital stock in the basic Solow growth model (see graph a few questions ago). If there subsequently were an increase in the demand for loanable funds due to more favorable tax treatment of business investment, ceteris paribus (i.e., holding other factors constant, including no shift in the supply of loanable funds), then as we move to the new steady state over time we would expect to see Group of answer choices A) economic growth rates turn negative as we move toward the new steady state and the nation’s capital stock to decrease from its current level. B) economic growth rates turn positive as we move toward the new steady state and the nation’s capital stock to decrease from its current level. C) economic growth rates turn positive as we move toward the new steady state and the nation’s capital stock to grow from its current level. D) economic growth rates turn negative as we move toward the new steady state and the nation’s…analyze the usefulness of Solow model in understanding empirical evidence relating to economic growth in economies.
- 8 Suppose we are considering a Solow Model without technology progress. Population growth rate=0.03 The capital accumulation is sY-dK s=0.1, d=0.02 Please calculate the capital per capita under the steady state. A. 2 B. 4 C. 6 D. 8 E. 16 F. None of the aboveThe Solow Growth Model is an exogenous model of economic growth that analyzes changes in the level of output in an economy over time as a result of changes in the population growth rate, the savings rate, and the rate of technological progress. Consider the Solow model. a) Explain using a graph why there is a poverty trap in this model b)Describe how an economy such as one characterized by this model may break out of a poverty trap.Consider the Solow growth model seen in lectures. Use n to denote population growth. Which of the following is true in steady state? a. ΔK/K= ΔY/Y= 0 ; Δk/k= Δy/y= 0 b. ΔK/K= ΔY/Y= 0 ; Δk/k= Δy/y= n c. ΔK/K= ΔY/Y= n ; Δk/k= Δy/y= 0 d. ΔK/K= ΔY/Y= n ; Δk/k= Δy/y= n e. None of the above
