Suppose that a country is at its golden-rule steady state. After an election, the newly elected government increases the goods and services tax (GST). In Solow's (1956) model, what would happen to (a) the saving per capita and consumption per capita,
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- Use the Solow model below to answer the question. Y 3 Y ₂ 2 Y₁ K₁ K₂ K3 Y = Af (K, H) dk SY K Suppose that Y₁ is 1,436, Y₂ is 6,076, and Y3 is 11,238. The savings rate for this economy is 11% and the depreciation rate is 5.1%. If this economy is currently at a GDP of 1,436, what is the smallest amount of foreign aid which would move the economy up to a GDP of 11,238? Assume that all foreign aid becomes investment. Round your final answer to two decimal places.Q4. Illustrate the Steady-State of the Solow-Swan model and show the effect of an increase in the savings rate on the Steady-State. PLease expain detail with the diagram.Question 1Some data at first might seem puzzling: The share of GDP devoted to investment was similar for Country liberty and Country Techno from 1970 - 2001. However, during these same years Country Techno had a 6 percent growth rate of average annual income per person, while Country liberty had only a 2 percent growth rate. If the saving rates were the same, why were the growth rates so different?
- a. Given a per capita production function ofy= k^0.5, a savings rate of 10%, a depreciation rate of 2%, a technological growth rate of 1%, and a population growth of 3%, what is this economy's steady-state level of output per capita. In a sentence, describe over time what is happening to this economy's level of RGDP when the economy is in a steady state. b. Imagine that the economy described in part a of this problem begins time (tO) with 1 unit of capital per effective worker. Assume that investment demand rises at the same rate as real GDP. Further, assume that by time t1 this economy has achieved the steady-state level of capital. On the left-hand side of the plots below, diagram the movement of the requested variables between time to and time t1.YIN CN Next question Suppose that the production function is given by Y- 05VR N 454 where Y is output, Kis capital, and N is the number of workers 4 Suppose that 60 05 With your favonte spreadsheet software, compute steady-state output per worker and steady-state consumption per worker for s 0, 801, a02, s1 Graph the steady-state level of output per worker and the steady-state level of consumption per worker as a function of the saving rate 25 1) Using the multipoint curve drawing tool, drawa curve showing the relationship between YIN and the saving rate. Properly label your curve 15 2) Using the multipoint curve drawing tool, draw a curve showing the relationship between CIN and the saving rate. Properly label your curve 0.5 Although the control ponts for your multpownt curves do not have to be exact try to plot them as accurately as possible 01 02 03 a'4 os o6 07 os 09 Saving rate, At what saving rates are YIN and CIN maximized? After plotting the final point of your multipoint curve…Question 2 If a natural disaster destroys a large portion of a country's capital stock but the saving and depreciation rates are unchanged, the Solow model predicts that the economy will grow and eventually reach:a. A lower steady-state level of output than it would have before the disasterb. None of these answers is correctC. The same steady-state level of output as it would have before the disasterd. A higher steady-state level of output than it would have before the disaster e. Not enough information is given now suppose you are given the data for Brazil and Portugal. In Brazil, the saving rate is 0.1 and the depreciation rate is 0.1, while in Portugal saving rate is 0.2 and the depreciation rate is 0.1. Using the Solow model, you conclude that in the steady-state: a. Brazil has a higher capital-output ratio than Portugal b. Portugal has a higher capital-output ratio than Brazil c. Brazil has a higher level of output than Portugal d. Portugal has a higher level of output than…
- Assume that a country's per-worker production is y = k1/2, where y is output per worker and kis capital per worker. Assume also that 10 percent of capital depreciates per year (= 0.10) 2 andthere is no population growth or technological change.a. If the saving rate (s) is 0.4, what are capital per worker, production per worker, andconsumption per worker in the steady state?b. Solve for steady-state capital per worker, production per worker, and consumption perworker with s = 0.6.c. Solve for steady-state capital per worker, production per worker, and consumption perworker with s = 0.8.d. Is it possible to save too much? Why?. For a high-income economy like the United States, what aggregate production function elements are most important in bringing about growth in GDP per capita? What about a middle-income country such as Brazil? A low-income country such as Niger?Solow-Swan Model Assume an economy with a production function that exhibits constant returns to capital.1 Ineach of the following cases, draw a Solow-Swan diagram and use is to explain whether andhow the economy converges to a steady state. Clearly identify any steady state(s) or otherwiseexplain why there is no steady state. (i) Assume the sum of population growth and the depreciation rate is greater than the savingrate.(ii) Instead assume the sum of population growth and the depreciation rate is less than thesaving rate.(iii) Instead assume that the sum of population growth and the depreciation rate is equal tothe saving rate. What is the importance of diminishing returns to capital in the Solow-Swan model?
- The diagram below shows alternate paths for two hypothetical economies, each starting with GDP of $1 billion. Assume that Area 1 is equal to Area 2. Real Consumption FIGURE 25-1 Area 1 Year X Aren 2 Time Year Y Economy B 2% growth Economy A 1% growth h Refer to Figure 25-1. Suppose Economy A jumps to the path of Economy B at Year 0 by increasing the share of GDP that is saved. In that case, which of the following statements about Economy A is true? O a. By jumping to a new growth path at Year 0, Economy A has increased the share of national income that is consumed. O b. By Year Y, the increase in consumption made possible by the economy's higher growth rate approximately equals the consumption sacrificed in earlier years. Oc By Year X, Economy A is saving and investing the same share of its national income as it would have been had it stayed on its original path Od. Economy A will not be able to regain the losses in consumption it incurs by jumping to the path of Economy B Oe. By Year…Nominal GDP (NGDP) Real GDP (RGDP) Estimated Resident Population by Age and Sex (1991+) (Annual-Mar) 3,970,000 4,044,900 4,101,300 4,148,000| 4,196,700 4,235,300 4,271,000 4,317,900 4,362,800 4,392,500 4,417,700 Data 2003 135,181 3,970,000 2004 144,502 4,044,900 2005 154,559 4,101,300 2006 162,937 172,004 4,148,000 2007 4,196,700 2008 186,673 4,235,300 2009 189,406 4,271,000 2010 194,306 4,317,900 Pad 2011 203,342 Page 4,362,800 4,392,500 4,417,700 2012 213,025 2013 217,489The following table shows the GDP per capita of various countries forthe years 1960 and 2010 in PPP-adjusted 2005 dollars. The table alsocontains the implied growth rates, which show how much on average eachcountry needed to grow each year to reach the 2010 level of GDP per capitastarting from the 1960 level of GDP per capita. Use the table to answer thefollowing questions. 1. Why have some countries reduced the gap between their incomes andthat of the United States and other countries failed to do so?