Question

1. In the Solow model without exogenous technological change,
per capita income will grow i**n the long term** as
long as the country has an initial level of capital below the
steady state level of capital (k o < k ⋅)

**TRUE OR FALSE?**

2. In the Solow model without exogenous technological change, per
capita income will grow **in the short term** as long
as the country has an initial level of capital below the steady
state level of capital (k o < k ⋅)

**TRUE OR FALSE?**

3. What is the growth rate of the aggregate level of capital (K)
-be aware that is different from the per capita level (k)- in
steady state?

a) zero

b) equal to the depreciation rate of capital

c) equal to the population growth rate

d) it depends on the initial level of capital

Answer #1

1)True, In the Solow model without exogenous technological change, per capita income will grow in the long term but a constant rate characterized by constant returns to scale in the long-run. That is, after the economy has time to adjust, the capital-labor ratio increases, and so does the output-labor ratio (per capita income) but not the rate of growth.

2) True, In the Solow model without exogenous technological change, per capita income will grow in the short term because there are diminishing returns to factor inputs in the short-run.

3) The growth rate of the aggregate level of capital (K) is the change in initial capital stock and this changes capital per worker until economy reaches its steady-state. so, it depends on initial level of capital.

Option d) is correct.

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...

Use the H-augmented Solow model to determine the a)
instantaneous impact on GDP per capita, b) instantaneous impact on
consumption per capita, c) long-run impact on GDP per capita, d)
long-run impact on consumption per capita, e) impact on long-run
GDP per capita growth rate, and f) impact on long-run GDP growth
rate of a permanent and instantaneous increase in the fraction of
national resources devoted to investment in human capital, sh.
Assume the country begins at its steady state...

Consider the simple version of the Solow model, with no
population growth and no technological change. Suppose that, due to
an aging capital stock, an economy experiences a sudden increase in
its depreciation rate.
a. Show the impact of an increase in the depreciation rate to ?
′ > ? on the diagram.
b. What happens to the steady-state level of capital?
_______
c. What happens to the level of output in the steady state?
_______
d. Assuming that the...

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

In the Solow growth model of an economy with population growth
and technological progress, the steady-state growth rate in output
per worker is equal to:
(a) zero
(b) the rate of technological progress g.
(c) the growth rate of population n plus the rate of technological
progress g. (d) the rate of technological progress g minus the
growth rate of population n.
In the Solow growth model of an economy with population growth
and technological progress, the steady-state growth rate...

1) In the steady state of the Solow model with technological
progress, which of the following variables is not
constant?
(a) capital per effective worker
(b) the real rental price of capital
(c) the real wage
(d) the capital-output ratio
2) The U.S. economy has more/less capital than at
the Golden Rule steady state, suggesting that it may be desirable
to
increase/decrease the rate of saving.
3) The purpose of exogenous/endogenous
growth theory is to explain technological progress. Some of these...

Which of the following statements about the Solow growth model
is FALSE?
A. The higher steady-state capital per capita, the higher the
output/income per capita.
B. The higher output/income per capita, the higher consumption
per capita.
C. Golden-rule capital per capita must be a steady state, but
not all steady-state is also a golden-rule.
D. Golden-rule capital per capita can be achieved by setting
the saving rate at the appropriate level.

Use the Solow model to solve. Suppose, you are the chief
economic advisor to a small African country with an aggregate per
capita production function
of y=2k1/2. Population grows at a
rate of 1%. The savings rate is 12%, and the rate of depreciation
is 5%.
(a) At the steady-state level of output, what is the numerical
value of consumption? Identify the amount of consumption in your
graph in part a. Show your work.
(b) Say that population growth decreases in...

Assume that an economy described by the Solow model has the
production function Y = K 0.4 ( L E ) 0.6, where all the variables
are defined as in class. The saving rate is 30%, the capital
depreciation rate is 3%, the population growth rate is 2%, and the
rate of change in labor effectiveness (E) is 1%.
For this country, what is f(k)? How did you define lower case
k?
Write down the equation of motion for k....

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