EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
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Question
Chapter 6, Problem 5AP
To determine
Effect of higher capital labor ratio on output
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Students have asked these similar questions
Consider two countries (A and B) identical in everything except that country A has higher capital. According to the Solow
model, which of these statements is true?
A Country A will grow as fast as country B and will end up with a higher equilibrium capitalK*
B. Country A will grow faster than country B and will end up with the same equilibrium capital K
C. Country A will grow as fast as country B and will end up with a lower equilibrium capital K*
D. Country A will grow slower than country B and will end up with the same equilibrium capital K*
cheik
pie
According to the Solow-Swan model, for a country that is initially in steady state, if the technology
parameter A rises, then:
the per capita capital stock initially increases, then returns to its initial steady state level
the per capita capital stock decreases and the country moves to a new, lower steady state level of per capita
income
the per capita capital stock initially decreases, then returns to its initial steady state level
O the per capita capital stock increases and the country moves to a new, higher steady state level of per capita
income
According the Harrod-Domar and Solow models, what should countries do if they want to grow?
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- Economic Two countries all else the same: country 1 has average schooling of 6 years while country 2 has average schooling of 9 years, according to Solow Growth Model with human capital, what is the steady- state output per worker ratio between country 1 to country 2arrow_forwardIf there is technological progress what will happen to the solow model ? Sketch itarrow_forwardConsider the country of Solow, which is described by the Solow–Swan growth model with constanttotal factor productivity. Let the saving rate θ = 0.75. Per capita output (y) is equal to 100 and the percapita capital stock (k) is 1000. For Solow to be in steady state: a.the depreciation rate is 0.025 and the population growth rate is 0.05 b.the depreciation rate is 0.25 and the population growth rate is 0.5 c.the sum of the depreciation rate and the population growth rate must be less than 0.075 d.the depreciation rate and population growth rate must sum to 0.75arrow_forward
- in the solow model with no population and technological progress what happensarrow_forwardGood Evening My name is Helen here's the problem A country is described by the solow model, with production function of y=k1/2, Suppose that k is equal to 400. The fraction of output invested is 50%. the depreciation is 5%. Is the country at its steady-state level of output per worker, above the steady state, or below the steady state? Show how you reached your conclusion.arrow_forwardI 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…arrow_forward
- QUESTION 4 The Solow model says that the faster productivity grows, the slower the K/AL ratio grows. This is because: Productivity growth increases output, but does not directly increase the capital stock Productivity growth increase the size of the capital stock directly, but does not directly increase output Productivity growth has no effect on output, but does increase the capital stock directly Productivity growth decreases the size of the capital stock directly, but does not directly increase output O O O Oarrow_forwardConsider the following numerical examples for the Solow Growth Model: Economy A z=1 s=0.5 F(K,N)=K0.3N0.7 n=0.01 d=0.1 Economy B z=1 s=0.2 F(K,N)=K0.3N0.7 n=0.01 d=0.1 In which economy is Consumption per capita higher in steady state? O Economy A O Economy B Not enough Informationarrow_forwardCountries 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.arrow_forward
- Using the Solow model diagram, illustrate what happens to the steady-state capital per worker and output per worker and output per worker when a country faces a positive technology stock.arrow_forwardSuppose a country has a capital-output ratio equal to 10, a savings rate equal to 20% of GDP, capital that lasts on average 100 years and population growth of 1% per year. If we assume the country is at its steady state and production is given by the Solow model with labor-augmenting technological change, so Y = K^a(EL)^(1 – a), then the growth rate of technology as measured by the growth rate of efficiency workers is 0% 1% 3% 2% 4%arrow_forwardThere are countries Alpha and Beta. Aside from being in steady-state initially, assume both economies had the same saving rate, the same rates of population growth and depreciation, and that capital has a common value of α = 1/2. Solve the following In this initial steady state, output has a ratio of Yalpha : Ybeta = 2 : 1. due to its higher productivity A. Use this information and equations for the steady state to calculate the ratio of productivity between A and B. Explain your derivations. Calculate the ratio of capital per capita between the two countries. Explain your derivations.arrow_forward
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