SOLOW’S MODEL (note: first three questions already been answered by a expert. Only questions 4, 5 and 6 need solutions) Consider following information from China and New Zealand in table: China New Zealand Real per capita GDP growth, 2012-2019 (average %) 6.5% 1.6% Real GDP per capita, 2012 (in constant 2017 USD) 11,169 32,989 Real GDP per capita, 20
SOLOW’S MODEL
(note: first three questions already been answered by a expert. Only questions 4, 5 and 6 need solutions)
Consider following information from China and New Zealand in table:
|
|
China |
New Zealand |
|
Real per capita GDP growth, 2012-2019 (average %) |
6.5% |
1.6% |
|
Real GDP per capita, 2012 (in constant 2017 USD) |
11,169 |
32,989 |
|
Real GDP per capita, 2019 (in constant 2017 USD) |
16,655 |
45,555 |
|
Average savings rate, 2012-2019 (% of real GDP) |
43.7% |
21.4% |
|
Capital stock, 2019 (in millions of constant 2017 USD) |
14,283,969 |
409,160 |
|
Population (in millions) |
1,434 |
4.8 |
|
Population growth (in %) |
0.5% |
1% |
|
Capital |
3% |
3% |
Production function in both economies has following functional form:
Yt = A * Kt1/3 * Lt2/3
Where Yt denotes aggregate GDP in period t, Kt is aggregate capital stock, Lt is employment (assumed equal for whole population) and A is total factor productivity.
- Using information provided in table, explain from SOLOW MODEL perspective what factors could explain differences in average GDP per capita growth between China and New Zealand between 2012 and 2019. Assume in this case that both countries have SAME RATE of TECHNOLOGICAL PROGRESS. (already been answered)
- Are data consistent with CONVERGENCE HYPOTHESIS for per capita income? Explain (already been answered)
- Find for each of countries level of capital stock per capita (k) and output (Y) as well as total factor productivity (A) in 2019. (already been answered)
- Find capital stock (k), output (y) and consumption (c) per capita in STATIONARY STATE. Assume that total factor productivity (A) remains fixed at its 2019 level for each country. (Pending response)
- Find GOLD RULE levels of capital stock (k*), output (y*) and per capita consumption (c*). (Pending response)
- Assume now that each country decides to apply GOLD RULE SAVINGS RATE. Will welfare increase or decrease after they switch from savings rate in effect in 2019 to GOLD RULE RATE? Calculate per capita consumption (c) that each economy would have achieved if it had applied GOLD RULE SAVINGS RATE (Pending response)
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In question 6) they also ask to calculate per capita consumption for China and New Zealand would have reached if it had applied GOLD RULE SAVINGS RATE.
Please confirm.
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