Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 6.A, Problem 1E
To determine
Transition dynamics in the combined Solow-Romer model.
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What is the principle of transition dynamics? Why does the Solow model leadto this principle, and why is it useful?
Why is the Malthusian model no longer regarded as an explanation for
modern economies? What are the main differences between the Malthusian and the Solow models?
Consider the basic Solow model with no population growth and no technological progress and a production function of the form F (K, H ), where H denotes the efficiency units of labor (human capital) given by where N is the set of all individuals in the population, and hi is the human capital of individual i. Assume that H is fixed. Suppose there are no human capital externalities and factor markets are competitive. (a) Calculate the steady-state equilibrium of this economy. (b) Prove that if 10% higher h at the individual level is associated with a% higher earnings, then a 10% increase in the country’s stock of human capital H will lead to a% increase in steadystate output. Compare this result to the immediate impact of an unanticipated 10% increase in H (i.e., consider the impact of a 10% increase in H with the stock of capital unchanged).
Chapter 6 Solutions
Macroeconomics (Fourth Edition)
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- Which of the graphs (if any) show a surprising or seemingly incorrect relationship based on what you know about conditional convergence and the Solow model?arrow_forward1. In the Solow model, if investment (I=sY) is lower than depreciation (dK), then…. A. Depreciation (dK) in the following period will be higher than in the current period. B. Capital stock (K) in the following period will be lower than in the current period. C. Per-capita GDP (y) in the following period will be the same as in the current period. D. Overall GDP (Y) in the following period will be higher than in the current period. The answer is B - - Can you show work for it, graph the representation for itarrow_forwardConsider the Solow model with Neoclassical Production Function and constant productivity. (a). Derive the condition for the Golden Rule level of capital per worker (b). Provide economic intuition for the condition.arrow_forward
- Why is Solow Model important for any Economy?arrow_forwardConsider the Solow Model. Suppose a country enacts a tax policy that discourages investment, and the policy reduces the investment rate immediately and permanently from sbar to sbarprime . Assuming the economy (and hence the initial capital stock) is ABOVE its initial steady state (note: this is different from the standard case where we start at the intial steady state), use the Solow diagram to explain what happens to the economy over time and in the long run. Draw a graph showing how output evolves over time (put Y_t on the vertical axis with a ratio scale and time on the horizontal axis), and explain what happens to economic growth over time.arrow_forwardConsider the Solow model. Draw the paths over time for the log of y, c and k for an economy that starts below its balanced-growth path.arrow_forward
- Consider two countries in a Solow economy with growth in population but no growth in technological change. Assume both start from below their steady-state k∗, but one starts further below than the other, and all parameters are identical. On the same diagram, plot transition paths for each country.arrow_forwardWhat determines whether a curve shifts in the Solow diagram? Make a listof the parameters of the Solow model, and state whether a change in eachparameter shifts a curve (which one?) or is simply a movement along bothcurves.arrow_forwardIn the Solow model, population growth leads to steadystate growth in total output, but not in output per worker. Do you think this would still be true if the production function exhibited increasin g or decreasing returns to scale? Explain.arrow_forward
- Explain what is the meaning of potential/long term output and why it can be said that the Solow model is primarily concerned with the long-term. 2) Explain the concept of conditional convergence. Use two graphs depicting two economies with different characteristics in order to illustrate your answer. please give me proper answer dont use chatGPT other wise i give multiple downvote and draw carefullyarrow_forwardIn the general Solow model there is no (zero) growth in GDP per worker in steady state. True or Falsearrow_forwardExplain the absolute convergence and conditional convergence hypotheses in the Solow-Swan model (provide country examples as well).arrow_forward
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