Question

In regards to the Solow growth model, Is this statement true of false? “If the production function exhibits diminishing marginal productivity on the range [0, ?̂] and increasing marginal productivity of the range [?̂, ∞), then there will be three steady state equilibria.” Explain your answer.

Answer #1

False.

The statement is false. This is because it is not the shape of the production function that determines the steady state equilibrium of the economy. The steady state equilibrium occurs at the point where the rate at which new capital is added is equal to the rate at which capital is depreciation or the point where savings curve or investment curve cuts the depreciation line of capital in the economy.Thus, steady state equilibrium occurs only at one point even if the production function exhibits diminishing marginal productivity on the range [0, ?̂] and increasing marginal productivity of the range [?̂, ∞).

Assume that an economy is described by the Solow growth model as
below:
Production Function: y=50K^0.4 (LE)^0.6
Depreciation rate: S
Population growth rate: n
Technological growth rate:g
Savings rate: s
a. What is the per effective worker production function?
b. Show that the per effective worker production function
derived in part a above exhibits diminishing marginal returns in
capital per effective worker
C.Solve for the steady state output per effective worker as a
function of s,n,g, and S
d. A...

1. If the technology (production function) and all the Solow
model parameters are same for two economies, they will eventually
converge to the same steady state levels of per-capita capital even
if they start at different levels of initial k.
True
False
2. If the technology (production function) and all the Solow
model parameters are same for two economies, more time taken will
be needed to reach steady state for the economy with high initial
level of per-capita capital?
True...

In the Solow model, increases in the rate of population growth
and increases in the rate of technological progress both lower the
steady state values of capital and output per efficiency unit. True
or false: Therefore both are undesirable. If false, explain how
they differ in their consequences for levels and growth rates of
Y/L.

what are the main conclusions of the solow growth model, explain
steady state as part of your answer?

According to the Solow model of growth, growth, in the long run
(the steady-state), determine only by growth in technology.
However, in the Solow model, there is nothing about how technology
determined. What factors do you think might affect technology in
the long run? Justify your answer and explain the implications to
the growth in the long run?

In the Solow growth model with population growth, but no
technological progress, if in the steady state the marginal product
of capital equals 0.10, the depreciation rate equals 0.05, and the
rate of population growth equals 0.03, then the capital per worker
ratio is below/above/equal to the Golden Rule level.
We can optimize per-capita income by
increasing/decreasing/leaving alone the savings rate.
What governmental policy could achieve this strategy?

1. Generally speaking, how does the Solow Growth Model improve
upon the model of relying on TFP differences to explain growth
across countries?
2. Describe, in your own words, the following terms in the Solow
Growth Model.
(a) Steady state
(b) The Principle of Transition Dynamics
(c) The capital accumulation equation

True or false or uncertain?
In the Solow model, a change in population growth rate affects
the level of per capita income, but it has no effect on the
long-run growth rate of per capita income.

In the Solow growth model with population growth but no
technological progress, if in the steady state the marginal product
of capital equals 0.10, the depreciation rate equals 0.05, and the
rate of population growth equals 0.03, then the capital per worker
ratio ____ the Golden Rule level.
A) is above
B) is below
C) is equal to
D) will move to

Solow Growth Model Question: Consider an economy where output
(Y) is produced according to function Y=F(K,L). L is number of
workers and Y is the capital stock. Production function F(K,L) has
constant returns to scale and diminishing marginal returns to
capital and labor individually. Economy works under assumption that
technology is constant over time. The economy is in the
steady-state capital per worker. Draw graph. Next scenario is that
the rate of depreciation of capital increases due to climate change...

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