Question

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 total output greater?

Answer #1

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...

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...

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....

Bradford Delong: Economic Convergence Assume that two countries
produce only with labor and capital and have the same savings and
depreciation rate. Further assume that there is no population
growth or innovation. One country has a low current level of
capital per worker, the other one has a high level of capital per
worker. Neither one of them has reached its steady state
equilibrium yet. Use a suited diagram drawn from the Solow/Swan
model to illustrate this situation. Which country...

Bradford Delong: Economic Convergence
Assume that two countries produce only with labor and capital
and have the same savings and depreciation rate. Further assume
that there is no population growth or innovation. One country has a
low current level of capital per worker, the other one has a high
level of capital per worker. Neither one of them has reached its
steady state equilibrium yet. Use a suited diagram drawn from the
Solow/Swan model to illustrate this situation. Which country...

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...

(2)
Given two counties that are identical in every way except for
the fact that country A has more capital than country B, why do we
expect country A to have greater output per worker relative to
country B? Use an appropriate graph of a production function to
illustrate your point. Be sure your graph is clear and
well-labeled.
(3) Referring to the above question, why would you expect
country B to grow faster relative to country A?

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 donâ€™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...

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...

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)...

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