Question

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 |

False |

3. At steady state, growth rate of per-capita income is zero but growth rate of income is not zero.

True |

False |

4. If the Lorenz curve of country A intersect the Lorenz curve of country B from below, then which country has more inequality?

When two Lorenz curves cross, we cannot tell which distribution has higher inequality |

Country A |

Country B |

Answer #1

1. Yeas, both economies will eventually converge because the final or the steady state depends on the savings, population and technology parameters, no matter with how much capital they have started with.

2. No, because the countries with initial low per capita capital would tend to grow faster as have higher per capita growth rates and manage to reach the higher per capita capital countries in time.

3. It is true. At the steady state, the income or the output is growing while the per capita output remains constant.

4. Two Lorenz curves cannot be compared when they cross. So if Lorenz curve of one country intersects other country's curve, we cannot be sure of which country has higher inequality because it is violating the basic assumption of Lorenz curve. In order to find one, we must use Ginni coeffient.

1. In the Solow model without exogenous technological change,
per capita income will grow in 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...

The economies of two countries, Thrifty and Profligate, have the
same production functions and depreciation rates. There is no
population growth in either country. The economies of each country
can be described by the Solow growth model. The saving rate in
Thrifty is 0.3. The saving rate in Profligate is 0.05.
(a) Which country will have a higher level of steady-state
output per worker?
(b) Which country will have a higher growth rate of output per
worker in the steady...

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....

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.

Consider an economy that is characterized by the Solow Model.
The (aggregate) production function is given by:
Y =
1.6K1/2L1/2
In this economy, workers consume 75% of income and save
the rest. The labour force is growing at 3% per year
while the annual rate of capital depreciation is 5%.
Initially, the economy is endowed with 4500 units of
capital and 200 workers.
Is the economy in its steady state? Yes/no,
explain. If the economy is not in its steady state,
explain what...

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...

Could you please answer these two questions?
1- If two economies are identical except for their population
growth rate, then the economy with the higher population growth
rate will have:
A. higher steady-state output per worker.
B. higher steady-state capital per worker.
C. lower steady-state depreciation rates.
D. lower steady-state capital per worker.
2- if the population growth rate decreases in an economy
described by the Solow growth model, the line representing
population growth and depreciation will.
A. Become steeper....

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...

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...

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.

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