Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 5, Problem 4RQ
To determine
The solution for the Solow model for consumption per person in steady state.
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Why is Solow Model important for any Economy?
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modern economies? What are the main differences between the Malthusian and the Solow models?
Q4. Illustrate the Steady-State of the Solow-Swan model and show the effect of an increase in the savings rate on the Steady-State. PLease write the explanation detail with the diagram.
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Macroeconomics (Fourth Edition)
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- Use the Solow model below to answer the question. Y 3 Y ₂ 2 Y₁ K₁ K₂ K3 Y = Af (K, H) dk SY K Suppose that Y₁ is 1,436, Y₂ is 6,076, and Y3 is 11,238. The savings rate for this economy is 11% and the depreciation rate is 5.1%. If this economy is currently at a GDP of 1,436, what is the smallest amount of foreign aid which would move the economy up to a GDP of 11,238? Assume that all foreign aid becomes investment. Round your final answer to two decimal places.arrow_forwardSuppose that a country is at its golden-rule steady state. After an election, the newly elected government increases the goods and services tax (GST). In Solow's (1956) model, what would happen to (a) the saving per capita and consumption per capita,arrow_forwardWhat determines whether a curve shifts in the Solow diagram? Make a listof the parameters of the Solow model, and state whether a change in eachparameter shifts a curve (which one?) or is simply a movement along bothcurves.arrow_forward
- Use the Solow model below to answer the question. Y Y3 Y₂ Y₁ K₁₁ K₂ K3 Y = Af(K,H) dk SY K Suppose that Y₁ is 1,475, Y₂ is 6,184, and Y3 is 10,992. The savings rate for this economy is 30% and the depreciation rate is 8.2%. If this economy is currently at a GDP of 1,475, what is the smallest amount of foreign aid which would move the economy up to a GDP of 10,992? Assume that all foreign aid becomes investment. Round your final answer to two decimal places.arrow_forwardIn the Solow model, if investment per-worker initially exceeds saving per-worker, how isthe steady-state capital per worker reached? Draw a graph to support your answerarrow_forwardConsider an economy that begins in a steady-state. Then an asteroid destroys two third of the capital stock. Using Solow model, draw a graph to explain how the economy behaves over time. Draw another graph indicating how output progresses over time, and demonstrate what happens to the level and growth rate of per capita GDP. By how much does the output decline when the capital stock falls by two third? Please include a description of what's happening on the graphs.arrow_forward
- An increase in research productivity: Suppose the economy is on a balanced growth path in the Romer model, and then, in the year 2030, research productivity z̅ rises immediately and permanently to the new level z̅′. Solve for the new growth rate of knowledge and yt. Make a graph of yt over time using a ratio scale. Why might research productivity increase in an economy? I do not understand how to solve this, I'm confused. Am I supposed to make an equation or write out an answer?arrow_forwardBriefly discuss drawbacks of Solow model?arrow_forwardforecast about the average GDP growth for the next 3 years (2021-2023)? Explain and justify. So calculate the contributions of TFP to GDP growth in this years. assuming alpha = 0.4arrow_forward
- Take the Solow model without technological change. Assume there is a government that taxes consumer's income at the tax rate t. The government uses the tax receipts to buy some of output. Assume that individuals save a fixed fraction, s, of their after tax income so St=s(1-t)Yt. (In this case, the government spending, g = TY). Show graphically that an increase in the tax rate will lower the steady state capital stock of an economy. Solve algebraically for the steady state capital stock.arrow_forwardSuppose a Solow economy is initially at its steady state k∗, and suddenly is hit by a decrease in the depreciation rate δ, from δ to δ1. This change does not alter any of the other exogenous parameters in the model Depict this situation in a graph What happens to steady state level of capital per capita in this situation? What happens to the level of capital per capita over time? Depict this in a graph and explain intuitively.arrow_forwardan economy is described by the Solow-Swan model with the following variables, E(t)=1 The saving rate is 0.41 per year. Labor's share of income is 0.44. The growth rate of labor efficiency is 0.03 per year. The growth rate of the labor force is 0.02 per year Depreciation is 0.09 per year. calculate the steady-state value of the capital-to-labor ratio, K/L Enter your answer to two places after the decimal.arrow_forward
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