In the Solow growth model, suppose initially that the economy is in its steady state, in which thesavings rate is lower than the golden-rule savings rate. Suppose the savings rate has changed tothe golden-rule savings rate, which of the following is TRUE for the effect on consumption perworker?Consumption per worker may be higher or lower than the initial steady-state level ofconsumption on the transition path, but the new steady-state level of consumption is lower.Consumption per worker may be higher or lower than the initial steady-state level ofconsumption on the transition path, but the new steady-state level of consumption is higher.Consumption per worker is always higher than the initial steady-state level of consumption inboth transition path and the new steady state.Consumption per worker is always lower than the initial steady-state level of consumption inboth transition path and the new steady state.

When the economy transitions from a steady state where the savings rate is lower than the…

Answered: In the Solow growth model, suppose…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Derive the long-run growth rates of output and output per capita as functions of the parameters of the Solow model.
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In a Solow model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a -3 percent rate, then in the steady state, output per worker grows at a percent rate, and total output grows at a percent rate. (Enter a number for each blank. Please do not include "%")
Consider a Solow-Swan economy with a Cobb-Douglas production function. Imagine that the savings rate "s" is an increasing function of capital and it has the following functional form: for low values of k the savings rate is constant at some low level. For intermediate levels of k, the savings rate increases rapidly. For high values of k the savings rate is constant again. In other words, the savings rate looks like: Does a steady state necessarily exist? b. Will the steady state be necessarily unique? а. Will the steady state(s) be stable? d. Will there be a "poverty trap"? (define poverty trap) С. How can this model be used (and how has this model been used) to justify large increases in foreign development aid? Discuss THREE potential flaws of the "savings poverty trap" model. е. f.
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Technical Progress in the Solow Model Suppose an economy that follows the assumptions of the Solow model saves a proportion s of its income every period, population grows at rate n, capital depreciates at rate d, and technical progress takes place at rate g. Assume it is not yet at steady state. a) Draw a graph to show initial level of capital k* < kss, output y* as well as the steady state levels of each. Be sure to draw and label the production function, investment and the line of effective depreciation, as well as k*, y*, kss and yss b) Explain what will happen to y* in the short run given this information (i.e. starting where k* < kss), according to the assumptions of the Solow growth model). c)At steady state, what is the growth rate of y*, y and Y? Explain your answers
answer part a, b and c please!

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