Question

Suppose, in the Solow growth model, that learning by doing is
captured as a cost of installing new capital. In particular,
suppose that for each unit of investment, r units of goods are used
up as a cost to firms.

(a) Determine how r affects the steady state quantity of capita per
worker, and per capita income.

(b) Now suppose that r differs across countries. How will these countries differ in the long run? Discuss.

Answer #1

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.

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...

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

In the steady state of the Solow model, higher population growth
leads to a _________ level of income per worker
and _________ growth in total income.

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) On a graph, show the output, break-even investment, and
savings functions for this economy (as a function of capital per
worker). Denote steady-state capital per worker k* and
steady-state output per worker y*. Label...

Consider a numerical example using the Solow growth model: The
production technology is Y=F(K,N)=K0.5N0.5 and people consume after
saving a proportion of income, C=(1-s)Y. The capital per worker,
k=K/N, evolves by (1+n)k’=szf(k)+(1-d)k.
(a) Describe the steady state k* as a function of other
variables.
(b) Suppose that there are two countries with the same steady
state capital per worker k* and zero growth rate of
population(n=0), but differ by saving rate, s and depreciation
rate, d. So we assume that...

2. Consider a numerical example using the Solow growth model:
The production technology is Y=F(K,N)=K0.5N0.5 and people consume
after saving a proportion of income, C=(1-s)Y. The capital per
worker, k=K/N, evolves by (1+n)k’=szf(k)+(1-d)k.
(a) Describe the steady state k* as a function of other
variables
(b) Suppose that there are two countries with the same steady
state capital per worker k* and zero growth rate of
population(n=0), but differ by saving rate, s and depreciation
rate, d. So we assume...

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...

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.

QUESTION 1
Suppose an economy can be characterized by a Cobb-Douglas
production function with capital share of 1/3, and A =
200. The investment rate is 0.12 (12%), the annual rate of growth
of the labor force is 0.02 (2%), and the annual depreciation rate
of capital is 0.04 (4%). According to the Solow growth model, this
economy's steady state capital/labor ratio (capital per worker,
k) is
4,000
8,000
10,000
12,000
None of the above.
QUESTION 2
The steady state...

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