Question

Hi,This question is very important and I need a quick response from you today/br/Ha Consider a...

Hi,This question is very important and I need a quick response from you today/br/Ha

Consider a version of the Solow model where the population growth rate is 0.05. There is no technological progress. Capital depreciates at rate ? each period and a fraction ? of income is invested in physical capital every period. Assume that the production function is given by:

?t = ?t1/2 ?t1/2 ,

where ?t is output, ?t is capital and ?t is labour.

a. Derive an expression for the accumulation of capital per worker in this economy, i.e.

∆?t+1 where ?t ≡ ?t/?t .

b. What is the steady-state condition in this economy? Explain the intuition behind the equilibrium condition and illustrate the steady state in a diagram.

c. What happens to capital and output per worker if the saving rate decreases? Illustrate your answer in a diagram and explain the mechanisms behind the transition to the new steady state.

d. What is the main criticism of the Solow model?

Homework Answers

Answer #1

b) Steady state output per worker depends positively on the saving (investment) rate and negatively on the population growth rate and depreciation rate.

c) If the saving rate decreases to say s',the saving curve shifts downwards to s'y and capital and output per worker falls since both the parameters depend positively on the saving (investment) rate. New steady state has lower capital per worker and output per worker.

d) Solow assumes technology as central for explaining the growth process but takes it as exogenous and does not offer any explanations for the same. His convergence hypothesis is majorly flawed and has no empirical validation.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider a version of the Solow model where population grows at the constant rate ? >...
Consider a version of the Solow model where population grows at the constant rate ? > 0 and labour efficiency grows at rate ?. Capital depreciates at rate ? each period and a fraction ? of income is invested in physical capital every period. Assume that the production function is given by: ?t = ?ta(?t?t )1-a Where ??(0,1), ?t is output, ?t is capital, ?t is labour and ?t is labour efficiency. a. Show that the production function exhibits constant...
Hi. i need answer for this question as quickly as possible. Consider the AS-AD model: Y˜...
Hi. i need answer for this question as quickly as possible. Consider the AS-AD model: Y˜ t = α − βµ(πt − π¯), where Y˜ t is short-run output, πt is current inflation and ¯π is an inflation target pursued by the central bank. The AS curve can be written: πt = πt−1 + νY˜ t + σ. a. Explain where the two equations come from and explain the intuition behind them. b. How would you interpret α and σ?...
Consider the simple version of the Solow model, with no population growth and no technological change....
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...
In the Solow growth model of an economy with population growth and technological progress, the steady-state...
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...
Consider how unemployment would affect the Solow growth model. Suppose that output is produced according to...
Consider how unemployment would affect the Solow growth model. Suppose that output is produced according to the production function Y = Kα [(1 – u)L]1-α where K is capital, L is the labor force, and u is the natural rate of unemployment. The national saving rate is s, the labor force grows at rate n, and capital depreciates at rate δ. a. Write a condition that describes the golden rule steady state of this economy. b. Express the golden rule...
Answer the following questions using the basic Solow growth model, without population growth or technological progress....
Answer the following questions using the basic Solow growth model, without population growth or technological progress. (a) Draw a diagram with per worker output, y, consumption, c, saving, s and investment, i, on the vertical axis and capital per worker, k, on the horizontal condition. On this diagram, clearly indicate steady-state values for c, i, and y. Briefly outline the condition that holds in the steady- state (i.e. what is the relationship between investment and the depreciation of capital?). (b)...
Question #1: The Basic Solow Model Consider an economy in which the population grows at the...
Question #1: The Basic Solow Model Consider an economy in which the population grows at the rate of 1% per year. The per worker production function is y = k6, where y is output per worker and k is capital per worker. The depreciation rate of capital is 14% per year. Assume that households consume 90% of their income and save the remaining 10% of their income. (a) Calculate the following steady-state values of (i) capital per worker (ii) output...
2. The Solow-Swan Model a) Consider an economy that is initially in a steady state equilibrium....
2. The Solow-Swan Model a) Consider an economy that is initially in a steady state equilibrium. Assume that in this equilibrium it has a saving rate of 50 per cent and a depreciation rate of 2 per cent. Further assume that the population is constant and that the level of output produced can be represented by the following production function: Y = AKαL 1−α where A = 1 and α = 0.5. Use the Solow-Swan model to determine the level...
Intermediate Macroeconomics! Thank you!! Suppose that the economy is summarized by the Solow economy with technological...
Intermediate Macroeconomics! Thank you!! Suppose that the economy is summarized by the Solow economy with technological progress: Production Function: Y=10K.3(LE).7 Savings rate: s= .2 Depreciation rate: δ= .1 Population Growth rate: n= .02 Technological growth rate: g= .01 a) Derive the per effective worker production function for this economy. b) Based on your answer in part (a), derive the formula for marginal product of capital (MPK) and show that the per effective worker production function exhibits diminishing marginal product of...
Solow Growth Model Question: Consider an economy where output (Y) is produced according to function Y=F(K,L)....
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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT