5. Foreign aid: Consider a Solow economy that begins with a capital stock equalto $300 billion, and suppose its steady-state level of capital is $500 billion. Toits pleasant surprise, the economy receives a generous gift of foreign aid in theform of $100 billion worth of capital (electric power plants, machine tools, etc.).(a) Use the Solow diagram, other graphs, and the mathematics of the Solowmodel to explain what happens to the economy, both immediately and overads time. By what proportion does consumption per person initially increase?What happens to consumption in the long run?(b) Suppose instead of starting below its steady state, the economy begins insteady state, with a capital stock equal to $500 billion. Answer part (a)for this case.(c) Summarize what this exercise teaches you about the possible consequencesof foreign aid. In this example, does foreign aid exert a long-run effect onthe welfare of poor countries? What is the benefit of foreign aid?

Solow model is the economic growth model which describes long-run economic growth. It was developed…

6. Foreign aid: Consider a Solow economy that begins with a capital stock equal to $300 billion, and suppose its steady-state level of capital is $500 billion. To its pleasant surprise, the economy receives a generous gift of foreign aid in the form of $100 billion worth of capital (electric power plants, machine tools, etc.). (a) Use the Solow diagram, other graphs, and the mathematics of the Solow model to explain what happens to the economy, both immediately and over time. By what proportion does consumption per person initially increase? What happens to consumption in the long run? (b) Suppose instead of starting below its steady state, the in steady state, with a capital stock equal to $500 billion. Answer part ( for thin begins economy (a)

6. Foreign aid: Consider a Solow economy that begins with a capital stock equal to $300 billion, and suppose its steady-state level of capital is $500 billion. To its pleasant surprise, the economy receives a generous gift of foreign aid in the form of $100 billion worth of capital (electric power plants, machine tools, etc.). (a) Use the Solow diagram, other graphs, and the mathematics of the Solow model to explain what happens to the economy, both immediately and over time. By what proportion does consumption per person initially increase? What happens to consumption in the long run? (b) Suppose instead of starting below its steady state, the in steady state, with a capital stock equal to $500 billion. Answer part ( for thin begins economy (a)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. In the Solow economic growth model, the steady-state K/N ratio transpires a) where sf(k) = (n+d)k b) where the slope of sf(k) equals the slope of (n+d)k c) where cf(k) is maximized d) where cf(k) = o e) band c only 2. The modemization of Solow's economic growth model has defined sf(k) as: a) The break-even investment level b) The capacity-driven investment level c) The minimum capital investment requirement d) The capital-deepening investment level 3. In the Romer endogenous growth model, 44/A a) is not the growth residual determined by endogenous factors b) is not the product of interaction between human capital and innovative changes in knowledge c) is not explained by the methodology of growth accounting d) does not shift the (n+d)k curve upward. 4. Romer's endogenous growth model would not advocate: a) For an increase in government expenditure on targeted research and development b) For an elimination of government expenditure on early childhood education c) For an elimination…
2. It is 1960. China's economy is in its steady state. It is predicted that the Chinese population will expand multi-fold over the next few decades. As an expert in economic growth, you have been called in to provide predictions about the economic effect of such population growth. a. Using the Solow diagram below, illustrate the effect on an increase in population growth on the post-1950 Chinese economy. у, і, б ہے k* Output Investment k Dep + Pop growth b. Explain (briefly) why this policy made sense to the government in 1960.
1) In the steady state of the Solow model with technological progress, which of the following variables is not constant? (a) capital per effective worker (b) the real rental price of capital (c) the real wage (d) the capital-output ratio
(a) Two countries, Country A and Country B, are described by the Solow growth model. Both countries are identical, except that the rate of labor-augmenting technological progress is higher in A than in B. i. In which country is the steady-state growth rate of output per effective worker higher? ii. Does the Solow growth model predict that the two economies will converge to the same steady state? p (b) Based on the Solow growth model with population growth and labor-augmenting technological progress, explain how each of the following policies would affect the steady-state level and steady-state growth rate of total output per person: i. an increase in the government's budget deficit poits) inis) ii. grants to support research and development (c) Consider a Solow model where the production function no longer exhibits diminishing returns to capital accumulation. Assume the production function is now Y = AK. What happens to the growth rate of per capita GDP over time? (6pints)
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…
Part 1 - Practice Questions 1. Suppose that a country enacts a tax policy that discourages investment and pushes the savings rate permanently lower from 5₁ to 52. Assume the economy is initially in its steady state. a. Use the Solow diagram to explain how the economy reaches its new steady state. b. Draw a graph showing how output evolves over time with Y on the y-axis and time on the x-axis and explain what happens to growth over time. 2. Explain whether each of the goods below are rivalrous or non-rivalrous. a. An iPhone b. A method for mass producing goods c. The Pythagorean theorem 3. Suppose an economy is currently on a balance growth path as described by the Romer model. For the following scenarios, determine whether the change will affect growth of and/or level of output per person; make use of the two equations noted in experiment #1 and #2 in Lecture 6 to support your answer. Then, using a ratio scale graph, illustrate the initial balanced growth path and the new path caused…
6. Using the Solow Model, determine graphically, the steady state for capital and output when there is an: (a) a permanent decrease in the savings rate (b) a permanent decrease in A (c) a permanent increase in the depreciation rate.
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Problem 4 a) Prof Andrew described steady states as "horrible places to be." Was this claim absolute or relative? Do countries having steady states that are lower in the capital have worse living qualities? b) Imagine a world where there are "n" countries with different levels of capital, k. They all share the same saving level, birth rate, and the same GDP per capita function. The only thing that differs is their depreciation rate. In this world, how does the distribution of income in the short term and long term look like? Think about the shape it would take.
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