In year 2021 investors recognize that the depreciation rate is higher than a decade earlier. They also recognize that the actual returns to their investments in physical capital over the previous decade have consistently fallen below their expectations. As a result, from 2021 onward they shift half of their new annual investment to a distant foreign country. How will this affect the Solow diagram and long-run GDP? Also label the new steady-state GDP as point D in the diagram. The Depreciation line curve will rotate down because of the reduction in the investment rate. Hence, steady-state GDP will rise. The Investment curve will shift up because of the reduction in the investment rate. Hence, steady-state GDP will fall further. The Depreciation line curve will rotate up because of the reduction in the investment rate. Hence, steady-state GDP will fall The Investment curve will shift down because of the reduction in the investment rate. Hence, steady-state GDP will fall further. None of the other options.

In year 2021 investors recognize that the depreciation rate is higher than a decade earlier. They also recognize that the actual returns to their investments in physical capital over the previous decade have consistently fallen below their expectations. As a result, from 2021 onward they shift half of their new annual investment to a distant foreign country. How will this affect the Solow diagram and long-run GDP? Also label the new steady-state GDP as point D in the diagram. The Depreciation line curve will rotate down because of the reduction in the investment rate. Hence, steady-state GDP will rise. The Investment curve will shift up because of the reduction in the investment rate. Hence, steady-state GDP will fall further. The Depreciation line curve will rotate up because of the reduction in the investment rate. Hence, steady-state GDP will fall The Investment curve will shift down because of the reduction in the investment rate. Hence, steady-state GDP will fall further. None of the other options.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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[TRUE or FALSE] Other things constant, a technological change (i.e., increased productivity) in the Solow model increases the steady state level of capital and output per worker. True False
9. Consider our graph of the basic Solow growth model. steady state dk y=F(() F() (-7' in LF equilibrium) On the graph above: y represents real output (or income) per worker; y-F(k) is the production function; is the capital stock per worker; s is the savings rate; 8 is the rate of depreciation of capital; 'i' represents business investment (purchases of capital) per worker); 'LF' stands for Loanable Funds. (For purposed of intuition, think of capital as 'machines.) If we started out with a capital (per worker) stock higher than the steady-state stock (above), we would expect to see which of the following happen over time? Positive growth rates while the capital stock increases. Positive growth rates while the capital stock stays less than the steady-state level. Negative growth rates while the capital stock increases. Positive growth rates while the capital stock decreases. Negative growth rates while the capital stock decreases.
Q10
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Which of the following most likely causes a shift of the Solow growth curve to the right? A) an increase in the money supply B) a decrease in tax revenues C) an increase in crop production due to more rainfall D) an increase in oil prices due to a fire in a major oil refinery E) None of the above.
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discuss simplest assumption of Solow model?
In the Solow model, suppose the per worker production function is y = 6 kº.5. Suppose s = 0.08, n = 0.04, and d = 0.08. Calculate the steady-state equilibrium capital-labor ratio. k= (Round to two decimal places.)
Part F and G
In the steady-state equilibrium with fixed technology, if the population and labor force are both growing at the rate of two percent per year, the Solow model predicts that: the capital stock will be constant each year. aggregate output will grow at the rate of two percent per year. output per worker will grow at the rate of two percent per year. aggregate output will grow at the rate of one percent per year.