Suppose the GDP of Imperial Rome is described by the Solow Model. Output is a function of productivity, physical capital, and human capital (which accumulates and depreciates in a similar manner as physical capital). In the year 600 Rome's economy is in steady state. Classify each of the following shocks based on its effect on GDP. There are 3 options for each shock: 1. An immediate impact, but no long-term impact 2. No immediate impact, only a long-term impact 3. Both an immediate and long-term impact Assume the shock happens at the beginning of year 600, after K600 is determined but before any production. Assume "immediate impact" means an impact on Y600- The discovery of steel, which allows Rome to build machinery with a lower rate of depreciation [Choose] The blessing of the Goddess Hera, which [Choose] increases Rome's stock of human capital An invasion of Vandals who destroy half of Rome's physical capital [Choose] The opening of a trade route to Brittania, which increases productivity [Choose] The arrival of a caravan of wealthy Persian [Choose] merchants, which increases Rome's investment rate
Suppose the GDP of Imperial Rome is described by the Solow Model. Output is a function of productivity, physical capital, and human capital (which accumulates and depreciates in a similar manner as physical capital). In the year 600 Rome's economy is in steady state. Classify each of the following shocks based on its effect on GDP. There are 3 options for each shock: 1. An immediate impact, but no long-term impact 2. No immediate impact, only a long-term impact 3. Both an immediate and long-term impact Assume the shock happens at the beginning of year 600, after K600 is determined but before any production. Assume "immediate impact" means an impact on Y600- The discovery of steel, which allows Rome to build machinery with a lower rate of depreciation [Choose] The blessing of the Goddess Hera, which [Choose] increases Rome's stock of human capital An invasion of Vandals who destroy half of Rome's physical capital [Choose] The opening of a trade route to Brittania, which increases productivity [Choose] The arrival of a caravan of wealthy Persian [Choose] merchants, which increases Rome's investment rate
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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