9. Consider our graph of the basic Solow growth model. y; steady state dk y=F(() *F(E) (-1' in LF equilibrium) On the graph above: y represents real output (or income) per worker; y-F(k) is the production function; & is the capital stock per worker; s is the savings rate; 8 is the rate of depreciation of capital; 'i' represents business investment (purchases of capital) per worker); "LF stands for Loanable Funds. (For purposed of intuition, think of capital as 'machines.) If we started out with a capital (per worker) stock higher than the steady-state stock (k. above), we would expect to see which of the following happen over time? Positive growth rates while the capital stock increases. Positive growth rates while the capital stock stays less than the steady-state level. Negative growth rates while the capital stock increases. Positive growth rates while the capital stock decreases. Negative growth rates while the capital stock decreases.

9. Consider our graph of the basic Solow growth model. y; steady state dk y=F(() *F(E) (-1' in LF equilibrium) On the graph above: y represents real output (or income) per worker; y-F(k) is the production function; & is the capital stock per worker; s is the savings rate; 8 is the rate of depreciation of capital; 'i' represents business investment (purchases of capital) per worker); "LF stands for Loanable Funds. (For purposed of intuition, think of capital as 'machines.) If we started out with a capital (per worker) stock higher than the steady-state stock (k. above), we would expect to see which of the following happen over time? Positive growth rates while the capital stock increases. Positive growth rates while the capital stock stays less than the steady-state level. Negative growth rates while the capital stock increases. Positive growth rates while the capital stock decreases. Negative growth rates while the capital stock decreases.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

9. Consider our graph of the basic Solow growth model.
steady state
dk
y=F(()
F() (-7' in LF
equilibrium)
On the graph above: y represents real output (or income) per worker; y-F(k) is the production
function; is the capital stock per worker; s is the savings rate; 8 is the rate of depreciation of
capital; 'i' represents business investment (purchases of capital) per worker); 'LF' stands for Loanable
Funds.
(For purposed of intuition, think of capital as 'machines.) If we started out with a capital (per worker)
stock higher than the steady-state stock (above), we would expect to see which of the following
happen over time?
Positive growth rates while the capital stock increases.
Positive growth rates while the capital stock stays less than the steady-state level.
Negative growth rates while the capital stock increases.
Positive growth rates while the capital stock decreases.
Negative growth rates while the capital stock decreases.

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) The goal is to analyze further the two-sector endogenous growth model. Write down the equation of motion for k, which shows delta k as saving minus break-even investment. (Break-even investment is the amount of investment needed to keep capital per effective worker constant.) Draw a graph that determines the steady-state k. In this economy, what's the steady-state growth rate of output per work? How do the saving rate and fraction of labor force in universities (u) affect this steady-state growth rate?
9. Consider a numerical example using the Solow growth model. Suppose that F(K, N) KO.5N0.5, with d = z = 1, and take a period to be a year. (a) Determine capital per worker, income per capita, and consumption per capita in the steady state. 0.1, s = 0.2, n = 0.01, and
= 2. Consider a Solow growth model in which the production function is Yt AK²N₁¹/2, where A = 1. Moreover, assume that the depreciation rate is d = 0.02, the rate of population growth is n = 0.02, and the saving rate is s = = 0.2. a. Compute the value of the capital stock per worker in steady state. b. Draw a graph that represents the steady-state equilibrium of the model. c. Suppose that the capital-labor ration in year t is 90. What will the level of the capital- labor ratio be in year t+1? Will it increase or decrease in future periods? Explain. d. Compute the rate of change of the capital labor ratio between time t and t + 1. How does it compare to the rate of growth of the capital-labor ratio in steady state?
The validity and ability of the Solow Growth Model in explaining the long-term growth of a country has been tested empirically.(a) In the Solow Growth Model we are introduced to the concept of the Golden Rule; optimum level of saving and capital formation to support growth. Is this Golden Rule concept proven empirically?(b) From what we have learned from the Solow Growth Model, describe some policies that can improve a country's economic growth rate.
Q1 The steady state Consider the Basic Solow Model without exogenous growth: Y-AKOL-a C= (1-8)Y Y=C+I K' I (1-8)K where labor is constant. Assume the following values for the rest of this question: A=100 a = 0.35 s=0.12 8=0.10 L=25 For each question that follows, if the answer depends on the answer(s) to previous question(s), use unrounded answers in do calculations. If you do not, rounding error will accumulate. Q1.1 Compute steady state capital per worker. Round your answer to at least three decimal places.
Consider our graph of the basic Solow growth model. On the graph above: y represents real output (or income) per worker; y=F(k) is the production function; k is the capital stock per worker; s is the savings rate; δ is the rate of depreciation of capital; ‘i’ represents business investment (purchases of capital) per worker); ‘LF’ stands for Loanable Funds. (For purposed of intuition, think of capital as ‘machines.’) If we started out with a capital (per worker) stock lower than the steady-state stock ( , above), we would expect to see which of the following happen over time? Group of answer choices A) Positive growth rates while the capital stock increases. B) Negative growth rates while the capital stock increases. C) Negative growth rates while the capital stock decreases. D) Positive growth rates while the capital stock stays less than the steady-state level. E) Positive growth rates while the capital stock decreases.
Could you show me the solution for question part b)