Assume a Solow growth model economy with no exogenous technological change isinitially at a steady state. Suppose there is a permanent decrease in the population growthrate, say on account of the spread of AIDS a major current problem in Sub-SaharaAfrica.graphicallythe path of the economy's capital and output per capita overShowtime following this event.

Answered: gical change is pulation growth…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume a Solow growth model economy with no exogenous technological change is
initially at a steady state. Suppose there is a permanent decrease in the population growth
rate, say on account of the spread of AIDS a major current problem in Sub-Sahara
Africa.
graphically
the path of the economy's capital and output per capita over
Show
time following this event.

Expert Solution

Step 1

Solow model is an exogeneous hrowth model which means that in Solow model only the growth in short run is possible through the factors within the model, long run growth rate depends on external factors.

Steady state is the state at which the change in capital accumulation is zero.

According to Solow model, if two countries have similar production function, identical saving rate, population growth rate, depreciation rate then two countries will converge at same steady state irrespective of initial capital stock.

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