a
To find: Whether the given statement is true or not.
a
Explanation of Solution
Uncertain
Any change in input affects output but it depends on the stage of returns to scale of production. When there is increase in level of technology, it is not necessary that labor will be as effective as capital to affect output. There can be any possibility of impact on output due to change in inputs.
Introduction:
Steady state in solow model is the situation in which capital is equal to
b)
To find:
Whether capital per effective worker remains constant due to increase in rate of technological progress.
b)
Explanation of Solution
True
To keep capital per effective worker constant, there is always a need for technological advancement. Firm must invest in their research and development department so that there is always a progress of technology. This is always to be done so that firms remains at steady state level of output.
Introduction:
Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.
c)
To find:
Whether output per worker increases due to population growth.
c)
Explanation of Solution
False
At steady state, output increases with the same rate as increase in population growth rate but output per effective worker remains constant. To remain at steady state, as population increases, output also increases so that economy remains at constant level.
Introduction:
Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.
d)
To find:
Whether output per worker increases due to technological progress.
d)
Explanation of Solution
True
At steady state level of output, capital per worker and out per worker remains constant. So, when there is progress in technology, that is capital, there is also a positive change in output per worker.
Introduction:
Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.
e)
To find: Whether growth of output per effective worker increases due to higher saving rate.
e)
Explanation of Solution
True
An increase in saving rate directly has a positive impact on capital stock and output level. A shift from lower steady state level of output to higher level of output increases leads to increase in the growth rate of output per worker, keeping population rate constant.
Introduction:
Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.
f)
To find: Whether R& D spending is riskier than investing in new machines.
f)
Explanation of Solution
True
It is riskier for firms to invest in research and development compared to new machines as the output generated is guaranteed in new machines. However, research and development outcome is suitable or not at current scenario and its development is questionable, therefore, it becomes risky.
Introduction:
Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.
g)
To find: Whether private firms will engage in basic research or not.
g)
Explanation of Solution
False
The decision to enter into research would also require the amount of money to be spent on component to translate into usable ideas for production. Thus, the feasibility of the research needs to be considered.
Introduction:
Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.
h)
To find: Whether growth will come to an end or not.
h)
Explanation of Solution
False
This statement does not have any adaptability or proof that growth will come to an end. Human being cannot predict the future. Hence, any statement without fact is false.
Introduction:
Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.
i)
To find: Whether technology has played an important role in C’s
i)
Explanation of Solution
False
The above statement is false as this is the only country in the world which produces and sells goods at relatively lower rate compared to other countries of the world. The level of technological progress and advancement has led this country to use human and natural resources efficiently.
Introduction:
Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.
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Chapter 12 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
- Assume the economy is initially in its balanced growth state. Suppose policymakers pursue policies that would increase the saving rate to s1=0.3. Draw a carefully-labelled diagram to illustrate the effect of the change in the saving rate on the economy in the long run. Explain the effect of the change in saving rate on steady-state capital per effective worker and steady-state consumption per effective worker?arrow_forwardConsider an economy described by the production function Y=F(K, L)=?^0.4?^0.6 A) What is the per-worker production function?B) Assuming no population growth or technological progress, find the steady-state capital stock per worker, output per worker, and consumption per worker as a function of the saving rate and the depreciation rate.arrow_forwardAssume that production in an agricultural economy takes place according to Y = AT0.5 L0.5 where Y is output, A is technology, T is the amount of land and L is the labour force. This means that growth in this economy can be decomposed as follows. gy = ga +0.5g7 + 0.5gL, where gy is the growth rate of output, ga is the growth rate of technology, gT is the growth rate of land and gr, is the growth rate of the labour force. Assume that everyone in this economy works and so the labour force is equal to the population, which grows at a rate n > 0. Assume that the quantity of land is fixed. Answer all parts below: (a) Find an expression for the growth rate of per-capita income. (b) Using this equation, explain why the Malthusian Trap could be present in this economy. (c) Why might the Malthusian Trap not apply in this economy? Carefully explain under what conditions the Malthusian Trap will and will not apply in this economy.arrow_forward
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