Use a diagram to represent the Solow Growth model using the aggregate production function and the relationship between the physical capital stock and aggregate saving. i) Which point in the diagram represents the steady-state equilibrium? Why? ii) Use the diagram to show the impact of an increase in human capital on GDP.
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Use a diagram to represent the Solow Growth model using the aggregate production function and the relationship between the physical capital stock and aggregate saving. i) Which point in the diagram represents the steady-state equilibrium? Why? ii) Use the diagram to show the impact of an increase in human capital on
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- Problem 1: How can policymakers influence a nation’s saving rate? Problem 2: Draw a well-labeled graph that illustrates the steady state of the Solow model with population growth. Use the graph to find what happens to steady-state capital per worker and income per worker in response to each of the following exogenous changes. a. A change in consumer preferences increases the saving rate. b. A change in weather patterns increases the depreciation rate. c. Better birth-control methods reduce the rate of population growth. d. A one-time, permanent improvement in technology increases the amount of output that can be produced from any given amount of capital and labor.In a standard Solow growth model that is calibrated in per-worker terms, what happens to the level of output when the saving rate (“s”) rises? How does the increase in “s” impact long-term output growth? How does the level of consumption change initially when savings rates rise? What happens to consumption over time?The government of "Arcadia" is considering various proposals to increase the country's GDP growth rates. Using the predictions of the Solow growth model, please discuss the merits of each of the proposed ideas for generating growth in income. For each proposal does your answer change in the short and long run? That is, would you always give the same advice? a. Information campaign to encourage people to save in an effort to increase national savings rate. o. Investment in building new roads connecting villages to cities (in this case existing road infrastructure is limited in the country)
- According to the Solow Growth Model, each of the following leads to higher level of output and capital in the long run: an increase in the saving rate, an increase in the depreciation rate, and an in increase productivity. A.) True B.) FalseQuestion 3 Suppose that a country is in a steady-state (as described by the Solow model), when numerous tornados hit and destroy much of their capital stock, while nothing else is affected. What happens to its steady-state rate of growth?QUESTION 1 (10 marks) Consider the Solow growth model without population growth or technological change. The parameters of the model are given by s = 0.2 (savings rate) and δ = 0.05 (depreciation rate). Let k denote capital per worker; y output per worker; c consumption per worker; i investment per worker. a. Rewrite production function per-worker terms. b. Find the steady-state level of the capital stock, kss
- Question 4:a. Identify two assumptions of the basic Solow Growth Model. b. Why are these assumptions important in supporting the Solow Model? c. You are given the following information about an economy.Y = C + IY = F(K, L)The aggregate production function for this economy exhibits constant returns to scale and the marginal products of labor and capital are both subject to diminishing returns.s = saving rate (assume this is constant) per yearδ= depreciation rate (assume this is a constant) per yeary = Y/Lk = K/Lk* = steady state of capital per worker (K/L) and sf(k) < δk.i. What is sf(k)? ii. What is δk?iii. Interpret the meaning of sf(k) < δk? iv. Graphically illustrate sf(k), δk, and k*. Indicate on your graph where sf(k) < δk.v. Explain what happens in this economy when sf(k) < δk.Consider an economy that begins in a steady-state. Then an asteroid destroys two third of the capital stock. Using Solow model, draw a graph to explain how the economy behaves over time. Draw another graph indicating how output progresses over time, and demonstrate what happens to the level and growth rate of per capita GDP. By how much does the output decline when the capital stock falls by two third? Please include a description of what's happening on the graphs.Question 2 Suppose that a country is in a steady-state (as described by the Solow model), when numerous tornados hit and destroy much of their capital stock, while nothing else is affected. What should we expect to happen to the country's subsequent growth rate and why? (A good answer to this question will be at least one paragraph).
- Which of the following is an incorrect statement about the variable ‘s’ in the Solow Growth Model? a.s is the fraction of income that is saved b.s is an exogenous factor c.s is referred to as saving per worker d.s determines how income is allocated between consumption and investmentQuestion 5a. According to Solow Growth model, capital stock is a key element of the economy’s output. Despite this, capital stock changes over time, where those changes can lead to economic growth. Given the two forces that influence capital stock, show graphically and mathematically how a steady state level of capital is determined.Population Growth and Technological Progress – Work It Out PLEASE WRITE ANSWERS CLEARLY An economy has a Cobb-Douglas production function: Y = K“(LE)'-a The economy has a capital share of 0.30, a saving rate of 42 percent, a depreciation rate of 4.00 percent, a rate of population growth of 5.25 percent, and a rate of labor-augmenting technological change of 3.5 percent. It is in steady state. b. Solve for capital per effective worker (k*), output per effective worker (y*), and the marginal product of capital. k* = y* = marginal product of capital =