1. Suppose an economy is initially in a steady state as described by the Solow model with labour augmenting productivity. Show and explain what the impact of large improvements in the quality of educational institutions could be using relevant diagrams and formulae.
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1. Suppose an economy is initially in a steady state as described by the
Solow model with labour augmenting productivity. Show and explain
what the impact of large improvements in the quality of educational
institutions could be using relevant diagrams and formulae.
Step by step
Solved in 2 steps with 1 images
- 5. Long run economic growth a) An economy is in its steady-state. According to the Solow model, what will happen to output per worker if the saving rate were to increase? Draw a diagram to illustrate. b) According to the Solow model, an increase in the saving rate is not always desirable. Why not? c) In the world economy, we see a great disparity of income per person. Yet the Solow model predicts conditional convergence - that poor countries will grow faster than rich countries and eventually converge to the same level of income per person as the rich countries. According to the Solow model, what conditions must be met for convergence to occur?1. Draw a well-labeled graph that illustrates the steady-state of the Solow model with population growth. Use the graph to find what happens to steady-state capital per worker and income per worker in response to each of the following exogenous changes.a. A change in consumer preferences increases the saving rate.b. A change in weather patterns increases the depreciation rate.c. Better birth-control methods reduce the rate of population growth.4. What is true about the Solow and Romer model? Select all the correct statements. (a) The Solow model can help us understand why some countries have higher growth rates of GDP per capita than others. (b) According to the Romer model, the growth rate of GDP per capita will decline to zero when countries reach the steady state. (c) Reallocating workers from producing output to producing research and development will lead to a higher growth rate of GDP per capita. (d) Suppose a country reallocates its workers from producing output to producing research and de- velopment in the year 2000. This will lead to higher GDP per capita in the year 2000. (e) Capital accumulation is an engine of long-run growth in GDP per capita. Answer:
- A4 Paul Krugman claims that the East Asian tigers grew because, among other things, they greatly increased the levels of education of their labour forces. But, he then shows that this investment in human capital will not permanently increase the rate of growth of the Asian economies. What are the effects of increased education according to the Solow model? Explain precisely, what changes and what does not change as a result of increases in human capital, using both graphs and words.Sweden and Norway are two neighboring countries in Northern Europe with similar savings rates, population growth rates, technology growth rates, and depreciation rates. However, Norway differs from Sweden in that Norway has large deposits of oil all along its coast, which makes it very easy for Norway to produce large quantities of crude oil every year with relatively little capital and labor. a) Draw a Solow Growth diagram that compares Sweden and Norway. What is the main difference between the two countries in the diagram? b) According to the Solow Growth Model, which country would have a higher standard of living in the long run? Which country would have a higher growth rate of its standard of living in the long run? c) Suppose now that, in the long run, oil becomes obsolete and has no value because it is uneconomical relative to renewable energy sources like solar and wind power. What would this do to your Solow Growth diagram in part a? How would the standard of living in Norway…1. Describe how, if at all, each of the following developments affects the break-even and actual investment line in the diagram for the Solow growth model: (a) The rate of depreciation falls. (b) The rate of technological progress rises. (c) The production function is Cobb-Douglas, f(k) = ka, and capital's share, a, rises. (d) Workers exert more effort, so that output per unit of effective labor for a given value of capital per unit of effective labor is higher than before.
- Solo growth model questions 1.) a. In a Solow growth model that is expressed in per capita terms, what happens to the marginal product of capital as an economy's capital/labor ratio increases? b. In a Solow growth model that is expressed in per capita terms, when an economy is in its steady state, what do you expect to happen to the capital-labor ratio? c. In a Solow growth model that is expressed in per capita terms, what happens to the capital/labor ratio when the savings rate rises? d.In a Solow growth model that is expressed in per capita terms, what happens to the capital/labor ratio when economywide productivity (this is our "A" variable) rises?Problem 1: How can policymakers influence a nation’s saving rate? Problem 2: Draw a well-labeled graph that illustrates the steady state of the Solow model with population growth. Use the graph to find what happens to steady-state capital per worker and income per worker in response to each of the following exogenous changes. a. A change in consumer preferences increases the saving rate. b. A change in weather patterns increases the depreciation rate. c. Better birth-control methods reduce the rate of population growth. d. A one-time, permanent improvement in technology increases the amount of output that can be produced from any given amount of capital and labor.1. In the Solow economic growth model, the steady-state K/N ratio transpires a) where sf(k) = (n+d)k b) where the slope of sf(k) equals the slope of (n+d)k c) where cf(k) is maximized d) where cf(k) = o e) band c only 2. The modemization of Solow's economic growth model has defined sf(k) as: a) The break-even investment level b) The capacity-driven investment level c) The minimum capital investment requirement d) The capital-deepening investment level 3. In the Romer endogenous growth model, 44/A a) is not the growth residual determined by endogenous factors b) is not the product of interaction between human capital and innovative changes in knowledge c) is not explained by the methodology of growth accounting d) does not shift the (n+d)k curve upward. 4. Romer's endogenous growth model would not advocate: a) For an increase in government expenditure on targeted research and development b) For an elimination of government expenditure on early childhood education c) For an elimination…
- Part 1 - Practice Questions 1. Suppose that a country enacts a tax policy that discourages investment and pushes the savings rate permanently lower from 5₁ to 52. Assume the economy is initially in its steady state. a. Use the Solow diagram to explain how the economy reaches its new steady state. b. Draw a graph showing how output evolves over time with Y on the y-axis and time on the x-axis and explain what happens to growth over time. 2. Explain whether each of the goods below are rivalrous or non-rivalrous. a. An iPhone b. A method for mass producing goods c. The Pythagorean theorem 3. Suppose an economy is currently on a balance growth path as described by the Romer model. For the following scenarios, determine whether the change will affect growth of and/or level of output per person; make use of the two equations noted in experiment #1 and #2 in Lecture 6 to support your answer. Then, using a ratio scale graph, illustrate the initial balanced growth path and the new path caused…(III) Consider a version of the Solow growth model without technological change covered in lecture with a rate of population growth of zero (i.e. n=0). Assume that the country has been at the BGP for many years and that suddenly at time t ̅ there is a onetime increase in its population. Show how the economy will adjust to a new BGP by working with the modified system (per capita/worker variables). Show how capital per worker adjusts to the new Steady State level and how its growth rate changes over time.(a) Two countries, Country A and Country B, are described by the Solow growth model. Both countries are identical, except that the rate of labor-augmenting technological progress is higher in A than in B. i. In which country is the steady-state growth rate of output per effective worker higher? ii. Does the Solow growth model predict that the two economies will converge to the same steady state? p (b) Based on the Solow growth model with population growth and labor-augmenting technological progress, explain how each of the following policies would affect the steady-state level and steady-state growth rate of total output per person: i. an increase in the government's budget deficit poits) inis) ii. grants to support research and development (c) Consider a Solow model where the production function no longer exhibits diminishing returns to capital accumulation. Assume the production function is now Y = AK. What happens to the growth rate of per capita GDP over time? (6pints)
