Consider the following statement about the Solow model, y = Akª, and parameters 0

The Solow-Swan model is a long-term economic growth model. It seeks to explain long-term economic…

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Consider the following statement about the Solow model, y Ak", and parameters 0

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter1: Introducing The Economic Way Of Thinking

Section: Chapter Questions

Problem 13SQ

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

Question

Consider the following statement about the Solow model, y = Akª, and parameters 0<a <1,0
<y <1, and 0 <ô <1: If the productivity parameter doubles in size, then long-run output per
capita will also double in size. Show that this statement is false.

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