Economic Growth 1. Consider a Solow economy without population growth as described in Chapter 8 of Mankiw, but let the specific production technologv be described by YAK1/3[2/3. Suppose it begins with a capital stock equal to $300 billion, and suppose its steady-state level of capital is equal to $500 b the form of $100 billion worth of capital (electric power plants, machine tools, etc.) illion. To its pleasant surprise, the economy receives a generous gift of foreign aid in (a) What happens to the economy immediately? What happens over time? By what pro- ortion does consumption per person initially increase? What happens to consumption in the long run! There is an immediate rise of K to $400 billion. Since it is now closer to the steady state, the economy and capital stock will grow more slowly than before. Consumption increases by the ratio (400 /30011/3, or 10%. Long-run consumption won't change at all (b) Suppose instead of starting below its steady-state, the economy begins in steady-state, with a capital stock equal to $500 billion. Answer part (a) in this case . Consumption immediately increases by 1600/ 5001 = 3 = 6.3% and then starts de- clining. In the long run, nothing changes

Economic Growth 1. Consider a Solow economy without population growth as described in Chapter 8 of Mankiw, but let the specific production technologv be described by YAK1/3[2/3. Suppose it begins with a capital stock equal to $300 billion, and suppose its steady-state level of capital is equal to $500 b the form of $100 billion worth of capital (electric power plants, machine tools, etc.) illion. To its pleasant surprise, the economy receives a generous gift of foreign aid in (a) What happens to the economy immediately? What happens over time? By what pro- ortion does consumption per person initially increase? What happens to consumption in the long run! There is an immediate rise of K to $400 billion. Since it is now closer to the steady state, the economy and capital stock will grow more slowly than before. Consumption increases by the ratio (400 /30011/3, or 10%. Long-run consumption won't change at all (b) Suppose instead of starting below its steady-state, the economy begins in steady-state, with a capital stock equal to $500 billion. Answer part (a) in this case . Consumption immediately increases by 1600/ 5001 = 3 = 6.3% and then starts de- clining. In the long run, nothing changes

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Discuss the role of saving in Solow growth model
Outward oriented policies have adverse effect on economic growth. Select one: a. Fales. b. True.
How do macroeconomic theories evolve? What is the Solow growth model? How does technology affect growth? Why are institutoins the key to economic growth?
What is Linear stages of growth model, Theories and Patterns of structural change, International‐dependence revolution and Neoclassical, free market counterrevolution in Economic Development?
Discuss the Solow Growth Model and carefully explain how its critical componentsimpact the model. (Include graphs and equations where necessary)
Define the steady state in solow growth model. Explain in a manner that i can understand.
In economics, we should know about the standard of living, the knowledge about Solow growth model and endogenous growth model of a country. Why it is so importance to know all of these?
Question 27 Consider countries A and B, with A having a higher population growth rate than B. According to the Solow-Swan model, output per person in A and output per person in B are the same in steady state. Answer True or False. Remember to include your explanation.
when a country adds ideas what is it doing to its productivity and GDP? Which variable in the Solow Model equation is it changing?