MACROECONOMICS (LOOSELEAF)-PACKAGE
13th Edition
ISBN: 9781337492317
Author: Baumol
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 3DQ
To determine
To describe: The steps taken to slow the pace of capital formation.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
=
5√K and has a capital
Country A produces GDP according to the following equation: GDP
stock of 13,399. If the country devotes 13% of its GDP to producing or repairing investment goods,
how much is this country currently investing?
Rounds your answer to two decimal places.
China invests almost 50 percent of its annual production in new capital compared to 15 percent in the United States. Capital per hour of labor in China is about 25 percent of that in the United States. Explain which economy has the higher real GDP per hour of labor, the faster growth rate of labor productivity, and which experiences the more severe diminishing returns.
Economics
Assume that the sum of population growth and
the depreciation rate is equal to
the saving rate. Are there steady states? If yes,
what are the steady states capital per
person?
Please be simple with the terms
Chapter 7 Solutions
MACROECONOMICS (LOOSELEAF)-PACKAGE
Knowledge Booster
Similar questions
- Lucas paradox indicates that Labor productivity should increase in poor countries in low rates. The law of diminishing marginal productivity of labor indicates that an extra $1 of capital per worker will increase labor productivity more in a poor country where capital stock per worker is low. This implies that capital should flow from rich countries to the poor. The observation that capital doesn't flow from the rich to the poor countries hence contradicting the above theory is called the Lucas paradox. poor countries have the lowest level of inflation. poor countries grow fast but remain poor.arrow_forwardIn Ghana, the capital share of GDP is about 40 percent, the average growth in output is about 2 percent per year, the depreciation rate is about 3 percent per year, and the capital–output ratio is about 1.5. Suppose that the production function is Cobb–Douglas and that Ghana has been in a steady state.a. What must the saving rate be in the initial steady state? [Hint: Use the steady-state relationship, sy = (δ + n + g)k.]b. What is the marginal product of capital in the initial steady state?c. Suppose that public policy alters the saving rate so that the economy reaches the Golden Rule level of capital. What will the marginal product of capital be at the Golden Rule steady state? Compare the marginal product at the Golden Rule steady state to the marginal productin the initial steady state. Explain.d. What will the capital–output ratio be at the Golden Rule steady state? (Hint: For the Cobb–Douglas production function, the capital–output ratio is related to the marginal product of…arrow_forwardIn Ghana, the capital share of GDP is about 40 percent, the average growth in output is about 2 percent per year, the depreciation rate is about 3 percent per year, and the capital–output ratio is about 1.5. Suppose that the production function is Cobb–Douglas and that Ghana has been in a steady state.a. What must the saving rate be in the initial steady state? [Hint: Use the steady-state relationship, sy = (δ + n + g)k.]b. What is the marginal product of capital in the initial steady state?c. Suppose that public policy alters the saving rate so that the economy reaches the Golden Rule level of capital. What will the marginal product of capital be at the Golden Rule steady state? Compare the marginal product at the Golden Rule steady state to the marginal productin the initial steady state. Explain.d. What will the capital–output ratio be at the Golden Rule steady state? (Hint: For the Cobb–Douglas production function, the capital–output ratio is related to the marginal product of…arrow_forward
- If the share of GDP used for capital goods is 0.08, the growth rate of productivity is 0.09, the growth rate of population is 0.02, the depreciation rate is 0.02, the initial capital/output ratio is 3.75, and the elasticity of GDP with respect to capital is 0.1, then what is the growth rate of the GDP per capita? Use three decimal places.arrow_forwardConsider a country that is initially in steady state. Suppose the saving rate increases. Moreover, the population growth rate increases by 1% but the capital depreciation rate falls by 1%. According to the Solow–Swan model, the per capita capital stock increases, and the country moves to a new, highersteady state level of per capita income.Answer true, false, or uncertain. Please briefly explain your answerarrow_forwardif European banks lend this extra saving to businesses, which use the funds to build new factories, how might this leads to faster growth in productivity? Develop an argument by providing 2 practical examples.arrow_forward
- In an economy, the capital share of GDP is about 30 percent, the average growth in output is about 3 percent per year, the depreciation rate is about 4 percent per year, and the capital–output ratio is about 2.5. Suppose that the production function is Cobb–Douglas, so that the capital share in output is constant, and that the economy has been in a steady state. a)What will the capital–output ratio be at the Golden Rule steady state? b)What must the saving rate be to reach the Golden Rule steady state?arrow_forwardSuppose there are two countries that are identical with the following exception. The saving rate in country A is greater than the saving rate in country B. Given this information, we know that in the long run output per capita will be greater in B than in A. economic growth will be higher in A than in B. more information is needed to answer this question. output per capita will be greater in A than in B.arrow_forwardIn Ghana, the capital share of GDP is about 40 percent, the average growth in output is about 2 percent per year, the depreciation rate is about 3 percent per year, and the capital-output ratio is about 1.5. Suppose that the production function is Cobb-Douglas and that Ghana has been in a steady state. a. What must the saving rate be in the initial steady state? [Hint: Use the steady-state relationship, sy = (6 + n+ g)k] b. What is the marginal product of capital in the initial steady state? c. Suppose that public policy alters the saving rate so that the economy reaches the Golden Rule level of capital. What will the marginal product of capital be at the Golden Rule steady state? Compare the marginal product at the Golden Rule steady state to the marginal product in the initial steady state. Explain.arrow_forward
- What are the sources of capital formation ?Explain ? (Subject:Economic Development of Pakistan)arrow_forwardBriefly explain and critically evaluate the role of public and private investment in Pakistan. Also point out their role in achieving sustainable economic growth of Pakistan.arrow_forwardDifferentiate between steady state stock of capital and golden rule level of capitalarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
