Growth rates in the Solow model (II): Suppose an economy begins in steadystate and is characterized by the following parameter values: s = 0.2, d = 0.1,A = 1, L = 100. Apply your answer to exercise 9 to calculate the growth ofper capita GDP in the period immediately after each of the changes listedbelow. (Hint: Since the economy begins in steady state, its growth rate isinitially zero and Kt = K∗.)(a) Te investment rate doubles.(b) Te productivity level rises by 10%.(c) An earthquake destroys 75% of the capital stock.(d) A more generous immigration policy leads the population to double.
Growth rates in the Solow model (II): Suppose an economy begins in steadystate and is characterized by the following parameter values: s = 0.2, d = 0.1,A = 1, L = 100. Apply your answer to exercise 9 to calculate the growth ofper capita GDP in the period immediately after each of the changes listedbelow. (Hint: Since the economy begins in steady state, its growth rate isinitially zero and Kt = K∗.)(a) Te investment rate doubles.(b) Te productivity level rises by 10%.(c) An earthquake destroys 75% of the capital stock.(d) A more generous immigration policy leads the population to double.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Growth rates in the Solow model (II): Suppose an economy begins in steady
state and is characterized by the following parameter values: s = 0.2, d = 0.1,
A = 1, L = 100. Apply your answer to exercise 9 to calculate the growth of
per capita
below. (Hint: Since the economy begins in steady state, its growth rate is
initially zero and Kt = K
∗.)
(a) Te investment rate doubles.
(b) Te productivity level rises by 10%.
(c) An earthquake destroys 75% of the capital stock.
(d) A more generous immigration policy leads the population to double.
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