a) What do steady state and conditional convergence mean? b) Why do these happen according to the Solow Growth Model? c) How can a country that is already at a steady state continue to grow?
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a) What do steady state and conditional convergence mean? b) Why do these happen according to the Solow Growth Model? c) How can a country that is already at a steady state continue to grow?
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- In the Solow growth model, assume all the standard assumptions hold, except that now population is constant (n = 0) and the depreciation rate d is equal to zero. Which is true? a) There are two steady states b) Capital and capital per worker grow at the same rate c) In the steady state, investment is equal to the depreciation rate d) Aggregate savings are larger than aggregate investment e) If we start with an initial capital larger than zero, the living standards will keep growing foreverSuppose we started out at the steady state capital stock in the basic Solow growth model (see graph a few questions ago). If the government increased the budget deficit (ceteris paribus) with an increase in government spending (with no change in taxes) to create an decrease in the supply of loanable funds (to the business sector ... and assume this does not shift the demand for loanable funds), then as we move to the new steady state over time we would expect to see Group of answer choices A) economic growth rates turn negative as we move toward the new steady state and the nation’s capital stock to decrease from its current level. B) economic growth rates turn negative as we move toward the new steady state and the nation’s capital stock to grow from its current level. C) economic growth rates turn positive as we move toward the new steady state and the nation’s capital stock to grow from its current level. D) economic growth rates stay the same as we move toward the new…Suppose we started out at the steady state capital stock in the basic Solow growth model (see graph a few questions ago). If there subsequently were an increase in the demand for loanable funds due to more favorable tax treatment of business investment, ceteris paribus (i.e., holding other factors constant, including no shift in the supply of loanable funds), then as we move to the new steady state over time we would expect to see Group of answer choices A) economic growth rates turn negative as we move toward the new steady state and the nation’s capital stock to decrease from its current level. B) economic growth rates turn positive as we move toward the new steady state and the nation’s capital stock to decrease from its current level. C) economic growth rates turn positive as we move toward the new steady state and the nation’s capital stock to grow from its current level. D) economic growth rates turn negative as we move toward the new steady state and the nation’s…
- Consider two distinct countries, denoted as A and B. Initially, Country A had a per capita GDP of $10,000 and experienced a growth rate of 10%, while Country B had a per capita GDP of $40,000 and experienced a growth rate of 2%. Assuming that the growth rates remain unchanged, which country will have a higher per capita GDP when t = 35 time periods (years)? O Country B O Country A O All of these choices are correct. They are the sameWhich of the following most likely causes a shift of the Solow growth curve to the right? A) an increase in the money supply B) a decrease in tax revenues C) an increase in crop production due to more rainfall D) an increase in oil prices due to a fire in a major oil refinery E) None of the above.How do macroeconomic theories evolve? What is the Solow growth model? How does technology affect growth? Why are institutoins the key to economic growth?
- 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)Long 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?
- when a country adds ideas what is it doing to its productivity and GDP? Which variable in the Solow Model equation is it changing?A key assumption of the Solow Growth Model is that: (a) the marginal product of capital diminishes as additional units of capital are added; (b) output per capita declines as a nation’s capital to labor ratio increases; (c) the marginal product of labor tends to rise as additional units of labor are added; (d) capital tends to depreciate at an increasing rate as a nation’s output increases.Suppose in a Solow model, we have the following parameter values: n = 0, s = 0.2, a = 0.33. There is no growth in the total factor productivity so that A, = A = 1. Moreover, we know that at time 0, the economy is at a steady state so that k = k, =1. Now imagine that a deadly pandemic hits the economy at time t=1. As a result, the population at time t =1 is 10% lower than the population at time t=0. The pandemic is a one-time shock so that population growth rate remains the same, i.e., from t-2 onward, the population remains the same as the population at time t=1. The total capital stock, however, is unchanged so that K, Ko. What is the growth rate of per-capita capital in percentage (rounded to the 2 decimal places, e.g., answer 1.08 if your calculation shows the growth rate is 0.01079) at time t=3 from time t=2? %3!