SOLOW'S MODEL Consider following information from China and New Zealand in table: China 6.5% 11,169 16,655 43.7% Real per capita GDP growth, 2012-2019 (average %) Real GDP per capita, 2012 (in constant 2017 USD) Real GDP per capita, 2019 (in constant 2017 USD) Average savings rate, 2012-2019 (% of real GDP) Capital stock, 2019 (in millions of constant 2017 USD) Population (in millions) Population growth (in %) Capital depreciation rate (in %) 14,283,969 1,434 0.5% 3.0% Production function in both economies has following functional form 1 2 3 Yt = AK³L³ New Zealand 1.6% 32,989 45,555 21.4% 409,160 4.8 1.0% 3.0% Where Yt denotes aggregate GDP in period t, Kt is aggregate capital stock, Lt is employment (assumed equal for whole population) and A is total factor productivity. 1. Find capital stock (k), output (y) and consumption (c) per capita in STATIONARY STATE. Assume that total factor productivity (A) remains fixed at its 2019 level for each country. 2. Find GOLD RULE levels of capital stock (k*), output (y*) and per capita consumption (C*). 3. Assume now that each country decides to apply GOLD RULE SAVINGS RATE. Will welfare increase or decrease after they switch from savings rate in effect in 2019 to GOLD RULE RATE? Calculate per capita consumption (c) that each economy would have achieved if it had applied GOLD RULE SAVINGS RATE.
SOLOW'S MODEL Consider following information from China and New Zealand in table: China 6.5% 11,169 16,655 43.7% Real per capita GDP growth, 2012-2019 (average %) Real GDP per capita, 2012 (in constant 2017 USD) Real GDP per capita, 2019 (in constant 2017 USD) Average savings rate, 2012-2019 (% of real GDP) Capital stock, 2019 (in millions of constant 2017 USD) Population (in millions) Population growth (in %) Capital depreciation rate (in %) 14,283,969 1,434 0.5% 3.0% Production function in both economies has following functional form 1 2 3 Yt = AK³L³ New Zealand 1.6% 32,989 45,555 21.4% 409,160 4.8 1.0% 3.0% Where Yt denotes aggregate GDP in period t, Kt is aggregate capital stock, Lt is employment (assumed equal for whole population) and A is total factor productivity. 1. Find capital stock (k), output (y) and consumption (c) per capita in STATIONARY STATE. Assume that total factor productivity (A) remains fixed at its 2019 level for each country. 2. Find GOLD RULE levels of capital stock (k*), output (y*) and per capita consumption (C*). 3. Assume now that each country decides to apply GOLD RULE SAVINGS RATE. Will welfare increase or decrease after they switch from savings rate in effect in 2019 to GOLD RULE RATE? Calculate per capita consumption (c) that each economy would have achieved if it had applied GOLD RULE SAVINGS RATE.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:SOLOW'S MODEL
Consider following information from China and New Zealand in table:
China
6.5%
Real per capita GDP growth, 2012-2019 (average %)
Real GDP per capita, 2012 (in constant 2017 USD)
Real GDP per capita, 2019 (in constant 2017 USD)
Average savings rate, 2012-2019 (% of real GDP)
Capital stock, 2019 (in millions of constant 2017 USD)
Population (in millions)
Population growth (in %)
Capital depreciation rate (in %)
11,169
16,655
43.7%
14,283,969
1,434
0.5%
3.0%
Production function in both economies has following functional form
1 2
Yt = AK³L³
New Zealand
1.6%
32,989
45,555
21.4%
409,160
4.8
1.0%
3.0%
Where Yt denotes aggregate GDP in period t, Kt is aggregate capital stock, Lt is
employment (assumed equal for whole population) and A is total factor productivity.
1. Find capital stock (k), output (y) and consumption (c) per capita in STATIONARY
STATE. Assume that total factor productivity (A) remains fixed at its 2019 level for each
country.
2. Find GOLD RULE levels of capital stock (k*), output (y*) and per capita consumption
(C*).
3. Assume now that each country decides to apply GOLD RULE SAVINGS RATE. Will
welfare increase or decrease after they switch from savings rate in effect in 2019 to
GOLD RULE RATE? Calculate per capita consumption (c) that each economy would
have achieved if it had applied GOLD RULE SAVINGS RATE.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 5 steps with 4 images
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.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education