The depreciation rate of capital in the US is 8 = 0.043 and the population growth rate is g₁ = 0.007. Moreover, Y/K is around 0.35 on average over the last 60 years in the US (see the graph. below). If the saving rate is s= 0.2 in the US, then find the long-run growth rate of average income in the US according to the Solow's model. (Note: To cross-check Compare your theoretical result with the actual growth rate of average income in the US which is 2%.)
The depreciation rate of capital in the US is 8 = 0.043 and the population growth rate is g₁ = 0.007. Moreover, Y/K is around 0.35 on average over the last 60 years in the US (see the graph. below). If the saving rate is s= 0.2 in the US, then find the long-run growth rate of average income in the US according to the Solow's model. (Note: To cross-check Compare your theoretical result with the actual growth rate of average income in the US which is 2%.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![1) The depreciation rate of capital in the US is 8 = 0.043 and the population growth rate is g₁ =
0.007. Moreover, Y/K is around 0.35 on average over the last 60 years in the US (see the graph
below). If the saving rate is s = 0.2 in the US, then find the long-run growth rate of average
income in the US according to the Solow's model. (Note: To cross-check Compare your
theoretical result with the actual growth rate of average income in the US which is 2%.)
0,43
0,41
0,39
0,37
0,35
0,33
0,31
0,29
0,27
0,25
1950
1953
1956
1959
1962
1965
Y/K in the US
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc8acadad-ca89-4976-80a4-d88a4ec2b72c%2Fd7930c11-fa18-434b-be9e-1c7004cf6c59%2Ffb8r2wi_processed.jpeg&w=3840&q=75)
Transcribed Image Text:1) The depreciation rate of capital in the US is 8 = 0.043 and the population growth rate is g₁ =
0.007. Moreover, Y/K is around 0.35 on average over the last 60 years in the US (see the graph
below). If the saving rate is s = 0.2 in the US, then find the long-run growth rate of average
income in the US according to the Solow's model. (Note: To cross-check Compare your
theoretical result with the actual growth rate of average income in the US which is 2%.)
0,43
0,41
0,39
0,37
0,35
0,33
0,31
0,29
0,27
0,25
1950
1953
1956
1959
1962
1965
Y/K in the US
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
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