Suppose the economy is initially in the steady state. According to Solow model without technological progress, an increase in the depreciation rate (5) will cause an increase in K/N. O a reduction in Y/N. O an increase in C/N. O a decrease in the saving rate, s O None of the other answers is correct.
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- Consider a Solow–Swan model with saving rate s = 0.4, labour force growth gL = 0.05, constant productivity A = 1, and depreciation ?δ = 0.05. If output per worker is y = Y/L = 200 and capital per worker is k = K/L = 1000, which of the following is true? Group of answer choices - Effective depreciation per worker is 80, saving per worker is 100 and k will increase towards the steady state - Effective depreciation per worker is 100, saving per worker is 80 and k will decrease towards the steady state - Effective depreciation per worker is 100, saving per worker is 80 and k is at the steady state - Effective depreciation per worker is 80, saving per worker is 100 and k will decrease towards the steady stateQuestion 2 If a natural disaster destroys a large portion of a country's capital stock but the saving and depreciation rates are unchanged, the Solow model predicts that the economy will grow and eventually reach:a. A lower steady-state level of output than it would have before the disasterb. None of these answers is correctC. The same steady-state level of output as it would have before the disasterd. A higher steady-state level of output than it would have before the disaster e. Not enough information is given now suppose you are given the data for Brazil and Portugal. In Brazil, the saving rate is 0.1 and the depreciation rate is 0.1, while in Portugal saving rate is 0.2 and the depreciation rate is 0.1. Using the Solow model, you conclude that in the steady-state: a. Brazil has a higher capital-output ratio than Portugal b. Portugal has a higher capital-output ratio than Brazil c. Brazil has a higher level of output than Portugal d. Portugal has a higher level of output than…I have to change the savings rate, but trying to figure out how to start. Let’s work out 5 periods of a Solow model with labor augmenting productivity (Z) growth. In your toy economy, the savings rate is 10%, and the depreciation rate is 50% (the high depreciation rate will get us to steady-state faster--think of each period as a decade). The population is fixed (treat it as one worker, N=1 forever). You always start off with 1 unit of capital, and TFP = Z = 1 during the first period. Since TFP and population never change, output each period is created this way: Yt = Kt(1/3)Zt(2/3) Consider two worlds: One where labor augmenting productivity (Z) grows 20% per period, and one where labor augmenting productivity (Z) grows 10% per period Answer the following questions for each of the two worlds What is capital each year, in years 1-5? What is GDP each year, in years 1-5? What is the marginal product of capital each year (MPK) in years 1-5? What is the wage in each period? In a steady…
- Parameters Equations s =0,20 marginal propensity to save Y=WKr.L1-r Production Function u=0,02 Population growth rate K.=s.f(k)−aK Capital Accumulation b=0,04 Technological growth rate L./L= ? Population Growth a=0,05 Depreciation rate W./W=b Technological Progress S=s.f(k) Savings 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…Let’s suppose economy is operating at steady state level of capital, explain graphically infollowing situations. a. If depreciation rate increasesb. If saving rate decreases(Long Run) The country of Prosperous has: Production function: Y = 2 K1/2 (AN)1/2, where Y=output;K=capital; A=technology; and N=labor Saving rate (s): 20% per year Depreciation rate (d): 10% per year Labor growth rate (n): 2% per year Rate of technological change (g): 8% per year d. If the country of Prosperous aims to achieve the optimal level of steady state consumption, what would you advise the government of the Prosperous to do regarding the country saving rate? Explain!
- 2. Solow-Swan Model (a) You will demonstrate the importance of diminishing returns to capital in the Solow-Swanmodel. Draw a Solow-Swan diagram in which there are constant returns to capital. Thiswould happen if the production function were Yt= AKt, where A = 1. Furthermore,assume that the sum of population growth and the depreciation rate is greater than thesaving rate. Does the economy converge to a steady state in this case? To answer thisquestion, you should draw a Solow-Swan diagram in terms of output per person, as we didin class. Use this diagram to explain why the economy converges to a steady state or doesnot. (b) Assume, instead, that the sum of population growth and the depreciation rate is equal tothe saving rate. In this case, are there any steady states? If yes, describe the steady-statelevels of capital per person. If no, explain why not. (Note: Diagram is not needed for thispart.)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?Suppose that the economy is summarized by the following: Technology (Production Function): Yt = 10 (Kt)0.3 (Lte)0.7 Consumption function: Ct = 0.8Yt Depreciation rate: 8% (i.e. δ= 0.08) Population growth: 2% (i.e. n = 0.02) Technological growth: 4% (i.e. g = 0.04) QUESTIONS: Find the steady state (long run) equilibrium values of kte, yet, and cet. Show graphically what would be the effect of a increase of the saving rate to s=0.4? Show graphically what would be the effect of an increase in population growth to 0.04? Assuming that in 2013 the US economy is in the steady state and L2013 = Le2013 = 8, what is the value of ke2014, ye2014, ce2014 , k2014, y2014, and c2014 ? Use your answer to e) to calculate the growth rate of ket, yet, cet , kt, yt, and ct Based on your answers to the previous questions and on your knowledge of how the Solow growth model works, explain what policies should a less-developed country pursue to raise its level of income in the long-run?…
- 10. In the steady state in a Solow model including effective/productive workers, the growth of output per effective worker is: G 0 N+G Depreciation rate Savings ratesuppose the production formula is given by yt= kt ^1/3 where y is the output per worker and k is the capital per worker. futhermore assume that the saving rate is exogenous and the capital deprecitates at delta rate. if the sum of both deprectiation rate and saving rate equals 1, answer the questions below 1. find the steady state values of capital, output, investments and consumption as functions of the saving rate only? 2. in a diagram show the steady state value values in a part (a)?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 period