Problem 2In class, we argued that if people could accumulate human as well as physicalcapital, the production function would look like the "AK" production function.(a) If the production function is AK and the savings rate is constant at rate "s",and the rates of depreciation and population growth are 8 and n respectively, whatwould the growth rate of the economy be?(b) What would be the macroeconomic consequences of increasing the savingsrate in this economy? Explain using the model and intuitively.(c) What would be the consequences of an increase in fertility in this economy?Are these consequences good or bad? Is this answer unambiguous?(d) How are human and physical capital different from one another in the waythey evolve from period to period?(e) Does human capital have an upper limit? If it does, what is the resultingproduction function when this is reached and the growth rate of the economy? Ifit doesn't have a limit, what is the resulting growth rate of output as it increases?(f) Assume country A's economic growth can be modelled by a neoclassicalgrowth model (i.e., all the neoclassical assumptions hold). Country A'sgovernment is looking to grow the economy. They claim that they can make itgrow forever by accumulating both human and physical capital at the same timeas this combination will allow them to avoid diminishing returns. Is country A'sgovernment correct? If so, why? If not, what is a better alternative? Make sure toreference the Neoclassical assumptions to answer this question.

The growth rate of the economy in this case would be:where:g is the growth rate of the economys is…

In class, we argued that if people could accumulate human as well as physical capital, the production function would look like the "AK" production function. (a) If the production function is AK and the savings rate is constant at rate "s", and the rates of depreciation and population growth are 8 and n respectively, what would the growth rate of the economy be? (b) What would be the macroeconomic consequences of increasing the savings rate in this economy? Explain using the model and intuitively. (c) What would be the consequences of an increase in fertility in this economy? Are these consequences good or bad? Is this answer unambiguous?

In class, we argued that if people could accumulate human as well as physical capital, the production function would look like the "AK" production function. (a) If the production function is AK and the savings rate is constant at rate "s", and the rates of depreciation and population growth are 8 and n respectively, what would the growth rate of the economy be? (b) What would be the macroeconomic consequences of increasing the savings rate in this economy? Explain using the model and intuitively. (c) What would be the consequences of an increase in fertility in this economy? Are these consequences good or bad? Is this answer unambiguous?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: What two variables are most important for sustained long-run growth? options: Increasing…

A: The long-run refers to a time period in which all the factors of production are variable. In the…

Q: Its production function is 2 times the square root of k (the same as 2k1/2) and its depreciation…

A: Introduction Solow has given a neo-classical model for economic growth which is the extension of…

Q: Question 1 Consider the following economy with production function: Y = AK L!-« where Y is total…

Q: onsider an economy’s production function is Y=K^1/3 N^2/3 and that both the saving rate and the…

A: Stead-state level: The concept of steady-state level is associated with the growth model. The…

Q: Consider an economy described by the production function: Y = F(K, L) = K^0,3L^0,7 A. What is the…

A: # According to the above given question.. the production function is given as:- Y = F(K, L) =K0.3…

Q: Question 1 Consider the following economy with production function: Y = AK"LL-a where Y is total…

A: *Hi there , as per our guidelines we are only allowed to solve 1 question with maximum 3 sub parts…

Q: Suppose a company discovers a breakthrough lubricant that reduces the amount of wear on mechanical…

A: The Solow Model of economic growth or the neo classical model of growth This model is also known as…

Q: 0.30 0.75, Production Function: Y = KLE, where E > 1 Savings rate: s = 12% Depreciation rate:8 = 7%…

A: the Solow Growth Model is a framework for understanding economic growth by analyzing the…

Q: Find the golden rule level of capital stock

A: The solow models would result in determining the steady state level of capital which would result in…

Q: Text:Using the labor market, the production function Real GDP = T (L, K), and the LRAS curve,…

A: In macroeconomics, economic fluctuations are generally studied using the concepts of aggregate…

Q: Assume the production function takes the general form (as in lecture notes) Y=zxF(K,L, A) where all…

A: Given information The production function is given as, Y = z * F(K, L, A) where, Y = output, z =…

Q: c. Suppose that public policy alters the saving rate so that the economy reaches the Golden Rule…

A: Note - Since you have posted multiple independent questions in the same request, we will solve the…

Q: Production function is given by Y = K (AN)-a, where a=2/3. Initially, the saving rate was equal to s…

A: a production function gives the technological relation between quantities of physical inputs and…

Q: Capital goods. Refer to the figure below and assume that the values for points a, b, and c (the…

A: At point a , b and c combined value of consumer and capital good are $20 billion, $40 billion and…

Q: Consider an economy with a Cobb-Douglas production function Y= K2 the growth rate of population is…

A: At golden rule level of capital per worker we have MPK = depreciation rate + rate of population…

Q: could someone answer this for me?

A: The income tax is a fiscal policy which deals with the income and expenditure of the government.…

Q: Refer to the figure below and assume that the values for points a, b, and c(the combined value of…

A: A production possibility frontier (PPF) depicts the combination of two goods that can be produced by…

Q: Suppose the production function for new technology is Α ▲A¿ = A¿ºÑд” where 0<µ≤1, A¿ is the stock of…

A: Technology's role in the production function underscores the influence of advancements of…

Q: Consider a Solow-Swan economy with a Cobb-Douglas production function. Imagine that the savings rate…

A: Note:- Since we can only answer up to three subparts, we'll answer the first three. Please repost…

Q: Suppose two countries, A and B, with the same production function Y = KaL¹-a. The value of a is…

A: Given information The production function for the 2 countries are similar…

Q: 3. Work It Out. Consider an economy described by the production function Y = F(K, L) = K0.4 0.6 a.…

A: The production function is a mathematical expression that describes the relationship between the…

Q: Consider the production function for a closed economy: Y = 4K0.5 (AN) 0.5 - = where Y is aggregate…

A: In the study of economics, production functions represents the relationship between the quantity of…

Q: 3) Suppose your per capita production function is given as y = kª. Capital evolves according to the…

A: Per capita Production function : y = ka consumption : c = (1-s) y Domestic Investment = id Total…

Q: Macmillan Learning Suppose Westeros produces output according to the production function: Y = √K The…

A: Steady state condition: Under the Solow model, the steady state refers to the long run equilibrium…

Q: Why is "financial capital" unable to be categorized as an attribute of production?

A: Financial capital refers to funds or monetary assets that are used by businesses or individuals to…

Q: Consider a hypothetical economy that has the production function Y = F(K, LE) = K¹/3 (LE) 2/3, where…

A: In the Solow growth model, a high saving rate promotes large steady-state capital stock and a high…

Q: class we argued that if people could accumulate human as well as physical capital, the production…

A: * Answer :-

Q: 20) Suppose that the production function is y = k0.25[that is, output per worker is equal to the…

A: As it is given to us that y=k0.25 S=0.06 n=0.02

Question

Problem 2
In class, we argued that if people could accumulate human as well as physical
capital, the production function would look like the "AK" production function.
(a) If the production function is AK and the savings rate is constant at rate "s",
and the rates of depreciation and population growth are 8 and n respectively, what
would the growth rate of the economy be?
(b) What would be the macroeconomic consequences of increasing the savings
rate in this economy? Explain using the model and intuitively.
(c) What would be the consequences of an increase in fertility in this economy?
Are these consequences good or bad? Is this answer unambiguous?
(d) How are human and physical capital different from one another in the way
they evolve from period to period?
(e) Does human capital have an upper limit? If it does, what is the resulting
production function when this is reached and the growth rate of the economy? If
it doesn't have a limit, what is the resulting growth rate of output as it increases?
(f) Assume country A's economic growth can be modelled by a neoclassical
growth model (i.e., all the neoclassical assumptions hold). Country A's
government is looking to grow the economy. They claim that they can make it
grow forever by accumulating both human and physical capital at the same time
as this combination will allow them to avoid diminishing returns. Is country A's
government correct? If so, why? If not, what is a better alternative? Make sure to
reference the Neoclassical assumptions to answer this question.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: (a) Calculate the growth rate

VIEW

Step 2: (b) Consequences of increasing the savings rate in this economy

VIEW

Step 3: (c) Consequences of an increase in fertility in this economy

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Follow-up Questions

Read through expert solutions to related follow-up questions below.

Follow-up Question

Please provide the solution for questions d, e, f

Solution

by Bartleby Expert

SEE SOLUTION

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

4. If the production function is given by Y=K2L'3 and the saving rate saving rate (s) equals the depreciation rate (8). Find the numerical values of the steady state capital and output?
How would I answer this?
6.5 Exercises Exercise 6.1 (Technological Progress and Long-Run Growth). Consider a Solow economy with population growth and technological progress. The evolution of the capital stock per efficiency unit of labor, denoted k1, is given by the law of motion (1+n)(1+ g)kt+1 = (1 – 8)kt +of(kt). Capital per efficiency unit of labor is defined as k, = Kt/(LEt), where Kt denotes the stock of physical capital, L, denotes population, and E is a tech- nological factor. Population grows at the rate n and the technological factor grows at the rate g. The subscript t denotes time, measured in years. The parameters d E (0, 1) and o > 0 denote, respectively, the depreciation rate of capital and the savings rate. The function f(k;) represents the produc- tion technology. Specifically, let Y, denote output and yt = Yt/(LEt) denote output per efficiency unit of labor. Then yt = f(kt). Assume that f(kt) = /k. 1. Find the steady-state stock of capital per efficiency unit of labor, de- noted k*, as a…
please answer the following, I have attached an image of the question for better format. Thanks! 3. Suppose that the production function of a country is given by Y=KaL1-a, where 0<a<1, Y is output, L is labour, and K is capital, Derive the equation for steady state capital per worker, output per worker, and consumption per worker in terms of the saving rate (s) and depreciation rate (d).
An economy's production function as follows Y = 8 (K)¹/2 (EL)¹/2 If depreciation rate is 10%, population growth rate is 4%, tech progress grows 6%, and saving rate is 20%. a. b. C. d. e. f. Write production function in term of per effective worker variables. Find steady state capital per effective worker, output per effective worker, consumption per effective worker, investment per effective worker. Find growth rate of capital per worker and output per worker at steady state. Find growth rate of capital stock and total output at steady state. Propose policies to encourage long run growth of total output and living standard? Draw relevant graph for the above questions.
Please assist to solve the below question. Suppose an economy is on a balanced growth path in a simple Romer model, as described in the text, where aggregate output is: Y, = A,Lyt, law of motion of ideas (idea production function) is: AA++1 = ZA“, Lat ; labour resource constraint is: Ly +Lat = L, and the allocation of labour is: La = IL, %3D where z is a productivity parameter of the researchers, Ao is the existing stock of ideas at time, t = 0, L is the total population and assumed to be constant, and i is the constant fraction of population who works in the research sector. Suppose in year 2030, research productivity z rises immediately and permanently to the new level z'. а. How would the growth rate of ideas behave if a <1? b. Assuming a = 1, solve for the new growth rate of knowledge and growth rate of output per capita. С. Assuming a = 1, sketch the graph of Iny against time t. d. Why might research productivity increase in an economy?
Problem 5 A “miraculous" Asian economy has an aggregate wage bill of 300 billion dollars and an aggregate GDP of 500 billion. The annual growth rate of aggregate GDP for this economy over the last 10 years was 7 percent (that is AY/Y=0.07) and the growth rate of labor was 6 percent (AL/L=0.06). Imagine that the production function is given by the standard Cobb-Douglas AK“L“. ,а, 1-а Y What are the "capital share (a)" and the "labor share (1 – a)"? b. Imagine that the government controls the national accounts. In its quest to improve its reputation, the government mistakenly thinks that having "a lot of investment" will make it look good so it "inflates" its growth of capital number to 12% (AK/K=0.12). When researchers estimate the rate of productivity growth (AA/A), what will they find? Is the growth rate of technology positive or negative? Does your result in (b) make sense? d. The actual truth is that the growth rate of capital was one half of what it announced. That is, instead of…