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- 16 True or False? The key difference between the Solow and production/expenditure models of the economy is that the Solow model endogenizes the saving rate.6. The Solow model assumes: the capital stock is constant the number of workers is growing the number of workers is constant the saving rate changes each period the depreciation rate changes each periodW=technology and r is standard share parameter of Cobb-Douglas production. Y = W . K^r . L^1-r a. Find steady-state level of capital per effective labor: k* b. Draw a graph and show output function, actual investment and breakeven investment lines. c. Assume that in this economy, people start spending more and therefore marginal propensity to save decline permanently. What will happen to variables in the model (steady-state level capital per effective labor; output growth etc.). d. Instead of reduction in saving assume this time that we face lower fertility rate in the country. What will happen to variables in the model (steady-state level capital per effective labor; output growth etc.).
- Graphically illustrate the traditional view of the long-run impacts of a debt-financed tax cut on: a. saving, investment, and real interest rate using the classical model (Chapter 3). b. steady state capital per worker and output per worker using the Solow growth model.Question 3Consider an economy described by the production function:Y = F(K, L) = K0.3 L0.7 a. What is the per-worker production function?b. Assuming no population growth or technological progress, find the steady-state capital stock per worker, output per worker, and consumption per worker as a function of the saving rate and the depreciation rate.c. Assume that the depreciation rate is 10 percent per year. Make a table showing steadystate capital per worker, output per worker, and consumption per worker for saving ratesof 0 percent, 10 percent, 20 percent, 30 percent, and so on. (You will need a calculator with an exponent key for this.) What saving rate maximizes output per worker? What saving rate maximizes consumption per worker?(a) Assess the effect of an increase in taxes on savings in a two period inter-temporal model within a perfect competitive capital market
- Q7 An economy has a Cobb–Douglas production function: Y = Kα(LE)1−α The economy has a capital share of 1/3, a saving rate of 24 percent, a depreciation rate of 3 percent, a rate of population growth of 2 percent, and a rate of labor-augmenting technological change of 1 percent. It is in a steady state. a. At what rates do total output, output per worker, and output per effective worker grow?b. Solve for capital per effective worker, output per effective worker, and the marginal product of capital. c. Does the economy have more or less capital than at the Golden Rule steady state? How do you know? To reach the Golden Rule steady state, does the saving rate need to increase or decrease?d. Suppose the change in the saving rate you described in part (c) occurs. During the transition to the Golden Rule steady state, will the growth rate of output per worker be higher or lower than the rate you derived in part (a)? After the economy reaches its new steady state, will the growth rate of…The saving rate (gross domestic saving as a % of GDP) in Singapore, a small open economy, was 48% in 2017 while the investment rate (domestic investment as a % of GDP) was 25%. As a result, there was net outflow of capital from Singapore in 2017. Explain whether the given statement is true, false or uncertain. Start your answer by selecting one of the options – “True”, “False” or “Uncertain” and then provide arguments to justify your selectionexplain whether the given statement is true, false or uncertain. Then provide arguments to justify your selection. The saving rate (gross domestic saving as a % of GDP) in Singapore, a small open economy, was 48% in 2017 while the investment rate (domestic investment as a % of GDP) was 25%. As a result, there was net outflow of capital from Singapore in 2017.
- Q1. In the Solow model, suppose s=0.3, delta(depreciation)=0.05, output f(k) = sqrt of k. The economy starts at time t=0 with k=1. Suppose there is expropriation by the government and the entrepreneur only gets to keep 30% out its output. a) What is the capital per worker at time t=1? b) How does this compare with the case of no expropriation?4. The Solow model describes: how saving rates are determined the static relationship between capital and output how savings, population growth, and technological change affect output over time how savings, population growth, and technological change affect output in a single period what constitutes technological change4. Suppose that we have a standard Solow model with a Cobb-Douglas production function. The central equation of the model is as follows:kt+1 = sAkαt + (1 − δ)kt.Consumption per worker is given by:ct = (1 − s)Akαt.(a) Solve for an expression for the steady state capital stock per worker. Indoing so, assume that the level of productivity is fixed at some value A.(b) Use your answer on the previous part to solve for an expression forsteady state consumption per worker.(c) Use calculus to derive an expression for the s which maximizes steadystate consumption per worker.