Answered: In the Solow model, if investment…

In the Solow model, if investment per-worker initially exceeds saving per-worker, how is the steady-state capital per worker reached? Draw a graph to support your answer

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In the Solow model, if investment per-worker initially exceeds saving per-worker, how is
the steady-state capital per worker reached? Draw a graph to support your answer

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Briefly discuss drawbacks of Solow model?
Qutuion 6&7 only
Suppose we started out at the steady state capital stock in the basic Solow growth model (see graph a few questions ago). If there subsequently were an increase in the demand for loanable funds due to more favorable tax treatment of business investment, ceteris paribus (i.e., holding other factors constant, including no shift in the supply of loanable funds), then as we move to the new steady state over time we would expect to see Group of answer choices A) economic growth rates turn negative as we move toward the new steady state and the nation’s capital stock to decrease from its current level. B) economic growth rates turn positive as we move toward the new steady state and the nation’s capital stock to decrease from its current level. C) economic growth rates turn positive as we move toward the new steady state and the nation’s capital stock to grow from its current level. D) economic growth rates turn negative as we move toward the new steady state and the nation’s…
Consider the basic Solow model with production function Y = K0.25 N0.75, saving rate of 20% and depreciation rate of 10%. Which of the following is true? The saving rate is: less than the golden rule' saving rate, hence the economy is saving too much less than the golden rule' saving rate, hence the economy is saving too little greater than the `golden rule' saving rate, hence the economy is saving too much greater than the `golden rule' saving rate, hence the economy is saving too little
Consider the Solow growth model with labor growth and no technology growth, i.e., n = 0, x = 0. Output is created by a Cobb-Douglas produc- n0,x tion function combining Labor, Lt, and capital, Kt, such that output, Y+is given by Y₁ = A+ KL Yt 1-a For a given time t, Given a level of Capital, and Investment, It, and a depreciation rate of capital, 8, the level of capital at time t+1 is given by the following law of motion of capital K++1 = Kt - 8Kt + It The labor growth rate in this economy is n = 2%, depreciation is 8 = 4%, the savings rate is s = 25%, and a = 0.3. Initial levels of capital, labor and technology are Ko = 10, Lo = 5, Ao = 1 respectively. The economy is assumed to be closed with no government spending. What is the value for capital per worker at time t = 1? (a) 2.22 (b) 2.57 (c)1.78 (d) 1.82
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Draw the Solow model and fully label your graph. This should includeper-worker production, steady state investment per-worker, and some labelfor consumption. Where is the “golden rule” consumption level? Is it at themaximum sustainable capital level? Explain.
a) Consider two countries that have the same parameters and exogenous variables (i.e. they have the same values for s¯, d¯, L¯ etc). Country A starts with a level of capital above the steady state. Country B starts below the steady state. First, plot the Solow diagram, explain why country B will grow but country A will shrink. b) Solve for steady state level of capital per person, k∗.
9. Consider a numerical example using the Solow growth model. Suppose that F(K, N) KO.5N0.5, with d = z = 1, and take a period to be a year. (a) Determine capital per worker, income per capita, and consumption per capita in the steady state. 0.1, s = 0.2, n = 0.01, and
Explain the Solow Model when there is an improvement of technology