Question

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 state?

(c) Which country will have a higher growth rate of total output in the steady state?

Answer #1

True or False and explain why:
Assume two economies are identical in every way except that one
has a lower saving rate. According to the Solow growth model, in
the steady state the country with the lower saving rate will have a
lower level of total output and a lower rate of growth of output
per worker as/than the country with the higher saving rate. Support
your answer with a graph of the solow model.

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....

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...

Suppose that two countries are exactly alike in every respect
except that population grows at a faster rate in country A than in
country B. Which country will have the higher level of output per
worker in the steady state? Illustrate graphically.
(a) In which country is the level of steady-state output per
worker larger? Explain.
(b) In which country is the steady-state growth rate of output
per worker larger?
(c) In which country is the growth rate of steady-state...

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...

Consider two countries: Country A and Country B. Each country
has the following Cobb-Douglas type production function:
Country A: Y = (K0.5)(EL)0.5 Country B: Y =
(K0.7)(EL)0.3
Unfortunately, your knowledge of Country A is a bit limited.
You have pieces of information, but you don’t know the entire
picture.
o Savings rate (s): unknown for Country A and 14.29% for
Country B
o Steady-state value of capital per effective worker: unknown
for both countries, but you have
heard that Country...

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...

Consider the Solow growth model. The production function is
given by Y = K^αN^1−α, with α = 1/3. There are two countries: X and
Y. Country X has depreciation rate δ = 0.05, population growth n =
0.03, and savings rate s = 0.24. Country X starts with initial
capital per worker k0 = 1
Country Y has depreciation rate δ = 0.08, population growth n =
0.02, and savings rate s = 0.3. Country Y starts with capital per...

Dacia and Romalia are two countries with the production function
given by the following relationship: f(k) = 6 k^(1/2). Capital to
labour ratio in Dacia is twice of that of Romalia. Dacia has a 10%
saving rate, 10% population growth rate, and 5% depreciation rate,
while Romalia has a 20% saving rate, 10% population growth rate,
and 20% depreciation rate.
Compute the following: a) Steady-state capital- labour ratio for
each country. Does the initial capital-labour ratio affect the
results?
b)...

Suppose Richland has the production function YR=ARLR1/2KR1/2,
while Poorland has the production function YP=APLP1/2KP1/2. Assume
that total factor productivity (A) is fixed – i.e. not growing --
in each country, but that L and K are evolving as described in the
standard Solow model with population growth (i.e. their saving
rates are given by sR and sP, their depreciation rates are given by
dR and dP, and their population growth rates are given by nR and
nP.)
a) Write down...

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