8. Solow Model. Given the production function Y₁ = AK L3³, if A = 2, L = 4, 5 = 0.2 and d = 0.05. (a) Calculate the steady state level of capital and output. (b) Why might we be more concerned about per capita output rather than total output when discussing the standard of living impacts of economic growth?

8. Solow Model. Given the production function Y₁ = AK L3³, if A = 2, L = 4, 5 = 0.2 and d = 0.05. (a) Calculate the steady state level of capital and output. (b) Why might we be more concerned about per capita output rather than total output when discussing the standard of living impacts of economic growth?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter20: Economic Growth

Section: Chapter Questions

Problem 20RQ: For a high-income economy like the United States, what aggregate production function elements are...

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For a high-income economy like the United States, what aggregate production function elements are most important in bringing about growth in GDP per capita? What about a middle-income country such as Brazil? A low-income country such as Niger?
List the areas where government policy can help economic growth.
The Solow Growth Model is a model that is often used to explain the theoretical relationship between several factors that determine a country's economic growthcountry.(a) Explain what you know about the Solow Growth Model and what are the most important determinants of a country's long-term growth rate?(b) Within the framework of the Solow Growth Model, how does population growth affect a country's economic growth rate?(c) Still within the framework of the Solow Growth Model, how does technological progress affect a country's growth rate?
2. In the Solow growth model, suppose that the per-worker production function is given by y zk, with s = 0.25, d= 0.1, and n=0.02. (a) Suppose that in country A, z = 1. Calculate per capita income and capital per worker. (b) Suppose that in country B, z = 2. Calculate per capita income and capital per worker. (c) As measured by GDP per capita, how much richer is country B than country A? What does this tell us about the potential for differences in total factor productivity to explain differences in standards of living S across countries?
3. An economy described by the Augmented Solow growth model has the following production function with populationgrowth (1+n) and technological growth (1+z):y =p(k)(a) Solve for the steady-state values of capital per capita and output as a function of s, n, z, and δ.(b) A developed country has a saving rate of 28 percent and a population growth rate of 1 percent per year. A lessdeveloped country has a saving rate of 10 percent and a population growth rate of 4 percent per year. In bothcountries, g = 0.02 and d = 0.04. Find the steady-state value of y for each country.(c) What policies might the less developed country pursue to raise its level of income? Graphically demonstrate howyour advised policy would increase income per capita (y).
1. Suppose an economy experiences both positive population growth (8 ) and technological progress (84 ). The capital depreciation rate is d . The saving rate is exogenously given as s. (a) Draw a diagram with variables in per effective worker terms to show how a steady state level of capital per effective worker (K/AN) is determined. Also explain your answers in words. (b) We further assume that the aggregate production function is given by Y= K“(AN)™, where o
3. Using your Solow Model, illustrate the effects of the following on steady state GDP and steady state capital per person (separate diagrams, please) a. the population growth rate decreases b. the government forces the economy to save more.
1. Using the solow growth model, given y(K) = k^0.4, S=0.20, depreciation rate=0.04 and n=1%, a. What is the steady-state level of capital per worker? b. What is the steady-state of output per worker? c. What is the steady-state level of consumption per worker? 2. Now assume population growth is instead-0.5% (approximately the growth rate when every couple has 1.7 children), but that all other parameters stay the same. a. What is the new steady-state output per worker? Is it higher or lower than with faster population growth? [A numerical answer and a 1 sentence response is fine.] b. What is the new steady- state of consumption per worker? Is it higher or lower than with faster population growth? [A numerical answer and 1 sentence response is fine].
An increase in research productivity: Suppose the economy is on a balanced growth path in the Romer model, and then, in the year 2030, research pro-ductivity z rises immediately and permanently to the new level z r. (a) Solve for the new growth rate of knowledge and yt.(b) Make a graph of yt over time using a ratio scale.
Sweden and Norway are two neighboring countries in Northern Europe with similar savings rates, population growth rates, technology growth rates, and depreciation rates. However, Norway differs from Sweden in that Norway has large deposits of oil all along its coast, which makes it very easy for Norway to produce large quantities of crude oil every year with relatively little capital and labor. a) Draw a Solow Growth diagram that compares Sweden and Norway. What is the main difference between the two countries in the diagram? b) According to the Solow Growth Model, which country would have a higher standard of living in the long run? Which country would have a higher growth rate of its standard of living in the long run? c) Suppose now that, in the long run, oil becomes obsolete and has no value because it is uneconomical relative to renewable energy sources like solar and wind power. What would this do to your Solow Growth diagram in part a? How would the standard of living in Norway…
According to Solow growth model, which are the main factors leading to expect convergence across regions. In addition, discuss which factors, if any, may lead to expect no convergence. b) In 2010, GDP per capita of the region of Brussels (Belgium) was €55000, while that of Severozapaden (Bulgaria) was €6.500. Assume that, from 2010 onwards Brussels maintains a constant anual growth of 2% during 50 years. • Obtain the (constant) annual growth rate at which the region of Severozapaden should grow in order to attain the same GDP per capita of Brussels after this period (50 years). Hint: use instantaneous annual growth rates. c) Discuss the implications of your answers in sections a) and b) for EU's regional policy.
Q)If half of the capital decreased,what will be the new steady state level of capital per capita? Draw a picture.(Solow Model) Explains in detail and correctly