Question

Consider the version of the Solow model with a general production function that exhibits constant-returns to...

Consider the version of the Solow model with a general production function that exhibits constant-returns to - scale in capital and effective labor. Suppose that the growth rate of the labor force increases permanently from n0 to nN .

(a) Draw the actual investment curve and the break-even investment line

with the original and the new n. How does k∗ change between the initial BGP and the new one?

(b) Suppose that the economy is at its original BGP where the growth rate of the labor force is n0. Let t0 denote the period when n increases permanently to level nN and tN denote the period in which the economy converges to the new BGP. Plot the following figures one below the other in sequence:

(i) First, plot the growth rate of the labor force n against time denoted by t.

(ii) Next, plot the rate of change of capital in units of effect labor k dot against time.

(iii) Finally, plot capital in units of effective labor k against time.

(c) Plot the growth rate of output per worker against time and then ln (Y / L) against time. What can you conclude about the level and growth effects on Y / L caused by the increase in n?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
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...
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...
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...
Assume that an economy described by the Solow model has the production function Y = K...
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....
Consider the Solow model economic production function, Y = A * K^a * L^(1-a) Assume the...
Consider the Solow model economic production function, Y = A * K^a * L^(1-a) Assume the following initial conditions: A = 1.8 a = 0.4 K = 11 L = 109 Additionally, you know that depreciation rate is 6 % and the savings rate is 13 %. What will be the total capital (K) at the end of the first period (beginning of second period)?
Again consider the Solow model economic production function, Y = A * K^a * L^(1-a) Assume...
Again consider the Solow model economic production function, Y = A * K^a * L^(1-a) Assume the following initial conditions: A = 1.7 a = 0.48 K = 12 L = 112 Additionally, you know that depreciation rate is 23 % and the savings rate is 23 %. What will be the total capital (K) at the end of the first period (beginning of second period)?
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)...
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...
Again consider the Solow model economic production function, Y = A * K^a * L^(1-a) Assume...
Again consider the Solow model economic production function, Y = A * K^a * L^(1-a) Assume the following initial conditions: A = 1.5 a = 0.31 K = 11 L = 86 Additionally, you know that depreciation rate is 15 % and the savings rate is 20 %. Assuming no changes in any of the parameters, besides the change in K over time, what is the long-run equilibrium level of capital?
Assume that an economy is described by the Solow growth model as below: Production Function: y=50K^0.4...
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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT