Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Chapter 8, Problem 6PA
To determine
The impact of population growth on the growth of total output and the growth of output per person.
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The Solow Growth Model is an exogenous model of economic growth that analyzes changes in the level of output in an economy over time as a result of changes in the population growth rate, the savings rate, and the rate of technological progress.
Consider the Solow model.
a) Explain using a graph why there is a poverty trap in this model
b)Describe how an economy such as one characterized by this model may break out of a poverty trap.
Consider the Swan-Solow model of economic growth. In questionsa) Briefly define the steady state and show it in your diagram. b) A major shift in people’s values causes them to save less and spend more as a percentageof their income. Analyse the effects of this change on each of the curves in your diagram,and find the new steady state. Briefly discuss your finding in the context of economicgrowth.
You were discussing the growth models with your friend Gaston during spring break. He summarized that the basic difference between the Solow model and the Romer
model is that the Solow model suffers from diminishing returns-each additional unit of capital has less benefit than the previous unit. The Romer model doesn't have the
same problem as labor used to generate new ideas doesn't have diminishing returns.
He hypothesizes that if you changed the law of motion to At+1 = At + zol1/2A; that now the Romer model has diminishing returns to labor and will reach a steady state
where growth is zero. Is he right?
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- Suppose an economy described by the Solow model is in a steady state with population growth n of 1.8 percent per year and technological progress g of 1.8 percent per year. Total output and total capital grow at 3.6 percent per year. Suppose further that the capital share of output is 1/3. If you used the growth-accounting equation to divide output growth into three sources—capital, labor, and total factor productivity—how much would you attribute to each source?arrow_forwardSuppose an economy described by the Solow model is in steady state with population growth n of 1.8 percent per year and technological progress g of 1.8 percent per year. total output and total capital grow at 3.6 percent per year. suppose further that the capital share of output is 1/3. if you used the growth accounting equation to divide output growth into three sources- capital, labor, and total factor productivity- how much would you attribute to each source? compare your results to the figures we found for the united states in tables 9-2.arrow_forwardIn class we assumed that the rate of population growth "n" was a constant. This was true for the Solow-Swan growth model as well as for the AK model. Imagine now that the rate of population growth is a function of k. Do you think fertility should be a function of k? An increasing or decreasing function of k? (Think of the costs and benefits of having children, and the reasons that lead people to purchase and produce kids) In the real world, do rich societies have larger or smaller fertility rates? Do you think mortality should be a function of k? An increasing or decreasing function of k? In the real world, do rich societies have larger or smaller mortality rates? Do you think net migration is a function of k? An increasing or decreasing function of k? In the real world, do rich societies tend to receive or to send migrants? а. b. C.arrow_forward
- Consider 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 GDP per capita higher in steady state? O Economy A O Economy B O Not enough Informationarrow_forwardMany demographers predict that for the lowest income countries, higher population growth rates will occur for the next few decades. Use the Solow model to predict the effect of these higher population growth rates on the: a. growth of total output in the steady state of these countries b. growth of output per worker in the steady state of these countriesarrow_forwardLong run economic growth a) An economy is in its steady-state. According to the Solow model, what will happen to output per worker if the saving rate were to increase? Draw a diagram to illustrate. b) According to the Solow model, an increase in the saving rate is not always desirable. Why not? c) In the world economy, we see a great disparity of income per person. Yet the Solow model predicts conditional convergence – that poor countries will grow faster than rich countries and eventually converge to the same level of income per person as the rich countries. According to the Solow model, what conditions must be met for convergence to occur?arrow_forward
- In the endogenous growth model of chapter 8, suppose that there are three possible uses of time. Let u denote the fraction of time spent working, s the fraction of time being unemployed and doing nothing, and 1-u-s the fraction of time spent acumulating human capital. Assume that z-1 and b-4.2 Also assume that the economy begins in period 1 with H=100 units of human capital. Suppose that the fraction spent working is 0.7 and the fraction spent unemployed is 0.05. Calculate aggregate human capital in period 5. 120 120.55 121 121.55arrow_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_forwardDraw a well labeled graph that illustrates the steady state of the solow model with population growth. Use the graph to find what happens to steady state capital per worker and income per worker in response to each of the following exogenous changes D. A one time permanent improvement in technology increases the amount of output that can be produced from any given amount of capital and labor. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward
- Beyond the Solow model, how do endogenous growth theories provide greater understanding of the process of economic growth?arrow_forwardUse the Solow model with exogenous growth to answer the following.Q 3.1: Following a reduction in the population growth rate, output per worker growth permanently increases. True or False Q 3.2: Following a reduction in the population growth rate, output per worker growth permanently increases. True or False Q 3.3: The only way to increase the long-run growth rate of output per worker is to increase the growth rate of labor efficiency. True or False Q 3.4: Following a decrease in TFP, output per worker growth temporarily declines. True or Falsearrow_forwardWhich of the following is an incorrect statement about the variable ‘s’ in the Solow Growth Model? a.s is the fraction of income that is saved b.s is an exogenous factor c.s is referred to as saving per worker d.s determines how income is allocated between consumption and investmentarrow_forward
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