One of the concerns of economists and policy makers is the share of the labor factor in the total income of the economy. Differently, what part of the GDP goes to the workers and what part of the GDP goes to the owners of the companies. A growth in income inequalities should translate into a ** drop in the labor factor. GDP data in terms of income allows us to see what is happening in the case of Canada. ktit (1-6)kt-1 • Yt = At k1 = (1 s) Yt Yt = &+ it (a-1) = . . w₁ = (1a) yt where kt is the stock of productive capital per worker at the end of period t, yt ,ct and it represent GDP, consumption, and investment in productive capital, Rt is the interest rate in the economy and wt is the salary. At is the level of productivity in the economy and is considered exogenous, as is the share of capital in production a and the household s savings rate. A) Given the information provided, what are the endogenous variables of the model? B) Now assume that $s=0.25, a = 1/3 and A= 2. Calculate the steady state of the Solow model. C) Using sfcr, simulate the impact on the economy of a change in the savings rate from s=0,25 to s = 0,2. Assume that the change takes place in t = 3 and lasts until period 200. Simulate the economy from the steady state found in B) for 200 periods. Plot the graph of consumption, investment, GDP, and capital stock. D) Give a very brief explanation of the impact of change on GDP in the long run.
One of the concerns of economists and policy makers is the share of the labor factor in the total income of the economy. Differently, what part of the GDP goes to the workers and what part of the GDP goes to the owners of the companies. A growth in income inequalities should translate into a ** drop in the labor factor. GDP data in terms of income allows us to see what is happening in the case of Canada. ktit (1-6)kt-1 • Yt = At k1 = (1 s) Yt Yt = &+ it (a-1) = . . w₁ = (1a) yt where kt is the stock of productive capital per worker at the end of period t, yt ,ct and it represent GDP, consumption, and investment in productive capital, Rt is the interest rate in the economy and wt is the salary. At is the level of productivity in the economy and is considered exogenous, as is the share of capital in production a and the household s savings rate. A) Given the information provided, what are the endogenous variables of the model? B) Now assume that $s=0.25, a = 1/3 and A= 2. Calculate the steady state of the Solow model. C) Using sfcr, simulate the impact on the economy of a change in the savings rate from s=0,25 to s = 0,2. Assume that the change takes place in t = 3 and lasts until period 200. Simulate the economy from the steady state found in B) for 200 periods. Plot the graph of consumption, investment, GDP, and capital stock. D) Give a very brief explanation of the impact of change on GDP in the long run.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:One of the concerns of economists and policy makers is the share of the labor factor
in the total income of the economy. Differently, what part of the GDP goes to the
workers and what part of the GDP goes to the owners of the companies. A growth in
income inequalities should translate into a ** drop * in the labor factor. GDP data in
terms of income allows us to see what is happening in the case of Canada.
kt = i + (1 – 8)k;-1
%3D
Yt = At · k1
Ct = (1 – s) · Yt
Yt = C + i
%3D
R = a A¿'• k 1
(a-1)
wi = (1 – a) · Yt
%3D
where kt is the stock of productive capital per worker at the end of period t, yt
,ct and it represent GDP, consumption, and investment in productive capital, Rt is
the interest rate in the economy and wt is the salary.
At is the level of productivity in the economy and is considered exogenous, as is the
share of capital in production a and the household s savings rate.
A) Given the information provided, what are the endogenous variables of the
model?
B) Now assume that $s = 0.25, a = 1/3 and A= 2. Calculate the steady state of the
Solow model.
C) Using sfcr, simulate the impact on the economy of a change in the savings rate
from s = 0,25 to s = 0,2. Assume that the change takes place in t = 3 and lasts
until period 200. Simulate the economy from the steady state found in B) for 200
periods. Plot the graph of consumption, investment, GDP, and capital stock.
D) Give a very brief explanation of the impact of change on GDP in the long run.
%3D
Transcribed Image Text:R = a At k )
k; = ių + (1 – 8)k;-1
Yt = A · k_1
C = (1 – s) · Yt
Yt = C + it
(a-1)
R = a· A k_1
W; = (1 – a) · Yt
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