Question

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 will grow faster and why?

Answer #1

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...

Suppose there are two very similar countries (call them E and
F). Both countries have the same population and neither is
experiencing population growth (that is, N is identical and
constant in both countries). Both countries depreciate capital at
the same rate, the both have the same savings rate, they both have
the same technology, and there is no technological progress.
Suppose that currently both countries are in steady state, when an
earthquake destroys half of the capital stock of...

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...

Some economists have suggested that the adoption of computer
technology involves faster rates of capital depreciation. Assume
that there is no technological progress (aside from the change in
the depreciation rate). Using the Solow-Swan model, explain
carefully the short-term and long-term effects (steady-state) on
GDP per worker and capital per worker.

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...

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...

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...

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...

Country A and country B both have the production function.
?=?(?,?)=?^1/2*?^1/2
c. Assume that neither country experiences
population growth or technological progress and that 5 percent of
capital depreciates each year. Assume further that country A saves
12 percent of output each year and country B saves 24 percent of
output each year. Using your answer from part bv(per worker
production funtion is y=f(k) and the steady-state
condition that investment equals depreciation, find the
steady-state level of capital per worker...

Suppose two countries, Farmland and Techland, use only capital
and labor to produce two goods, Grain (G) and Cars (C). Farmland
has 2,050 units of capital and 916 units of labor, and Techland has
816 units of capital and 270 units of labor. In Techland, there are
366 units of capital and 135 units of labor employed in the Grain
industry. In Farmland, there are 926 units of capital and 618 units
of labor employed in the Grain industry.
A. ...

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